(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~February 1, 2018,~~April 30, 2020, the registrant had ~~19,160,667~~20,004,258 shares of common stock, $0.01 par value per share, outstanding.

This Quarterly Report on Form 10-Q, or Form 10-Q, contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking ~~statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.~~statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about overall trends, royalty revenue trends, research and clinical development plans, liquidity and capital needs and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions. These forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management’s beliefs and assumptions. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and discussed elsewhere in this Form 10-Q. These forward-looking statements speak only as of the date of this Form 10-Q. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the ~~Securities and Exchange Commission (SEC)~~SEC after the date of this Form 10-Q.

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements

The accompanying notes are an integral part of these consolidated financial statements.

Enanta Pharmaceuticals, Inc. (the “Company”), incorporated in Delaware in 1995, isa biotechnology company that uses its robust, chemistry-driven approach and drug discovery capabilities to create small molecule drugs ~~primarily~~ for the treatment of viral infections and liver diseases. The Company discovered glecaprevir, the second ~~of two~~ protease ~~inhibitors~~inhibitor discovered and developed through its collaboration with AbbVie ~~and marketed as part of AbbVie’s new direct-acting antiviral (DAA) regimen under the tradenames MAVYRET™ (U.S.) or MAVIRET™ (ex-U.S.) (glecaprevir/pibrentasvir)~~ for the treatment of chronic hepatitis C virus, or HCV. ~~The other protease inhibitor under its HCV collaboration~~Glecaprevir is co-formulated as part of AbbVie’s ~~initial DAA regimens~~leading brand of direct-acting antiviral (DAA) combination treatment for ~~the treatment of chronic~~ HCV, which is marketed under the tradenames ~~VIEKIRA PAK~~MAVYRET^®~~(paritaprevir/ritonavir/ombitasvir/dasabuvir)~~ (U.S.) ~~or VIEKIRAX~~and MAVIRET^®~~(paritaprevir/ritonavir/ombitasvir)~~ (ex-U.S.) (glecaprevir/pibrentasvir). Royalties from the Company’s AbbVie collaboration and its existing financial resources provide funding to support ~~its wholly owned~~the Company’s wholly-owned research and development ~~efforts~~programs, which are ~~currently~~primarily focused on the following disease ~~targets: non-alcoholic steatohepatitis (“NASH”); primary biliary cholangitis (“PBC”);~~ targets: respiratory syncytial virus (“RSV”) ~~and~~, non-alcoholic steatohepatitis (“NASH”), hepatitis B virus (“HBV”), human metapneumovirus (hMPV), and SARS-CoV-2 (COVID-19).

The Company is subject to many of the risks common to companies in the biotechnology industry including, but not limited to, the uncertainties of research and development, competition from technological innovations of others, dependence on collaborative arrangements, protection of proprietary technology, dependence on key personnel and compliance with government ~~regulations and the need to obtain additional financing.~~regulation. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approvals, prior to commercialization. These efforts require significant amounts of capital, adequate personnel infrastructure, and extensive compliance reporting capabilities.

In March 2020, the World Health Organization declared COVID-19 a global pandemic and countries worldwide implemented various measures to contain the spread of the virus. National, state and local governments in affected regions have implemented and may continue to implement safety precautions, including quarantines, border closures, increased border controls, travel restrictions, shelter-in-place orders and shutdowns, business closures, cancellations of public gatherings and other measures. The extent and severity of the impact on the Company’s business and clinical trials will be determined largely by the extent there are disruptions in the supply chains for its research and product candidates, delays in the conduct of current and future clinical trials, or reductions in the number of patients accessing AbbVie’s HCV regimens, or any combination of those events. In the three months ended March 31, 2020 and through the date of issuance of these financial statements, the Company’s consolidated financial position, results of operations and cash flows have not been materially impacted by the COVID-19 pandemic.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and public health actions taken to contain it, as well as the cumulative economic impact of both of those factors.

The consolidated balance sheet at September 30, ~~2017~~2019 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited consolidated financial statements as of ~~December~~March 31, ~~2017~~2020 and for the ~~three~~six months ended ~~December~~March 31, ~~2017~~2020 and ~~2016~~2019 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, ~~2017.~~2019.

In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of ~~December~~March 31, ~~2017~~2020 and results of operations for the three and six months ended ~~December~~March 31, ~~2017~~2020 and ~~2016~~2019 and cash flows for the ~~three~~six months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, have been made. The results of operations for the three and six months ended ~~December~~March 31, ~~2017~~2020 are not necessarily indicative of the results of operations that may be expected for subsequent quarters or the year ending September 30, ~~2018.~~2020.

The accompanying consolidated financial statements have been prepared in conformity with GAAP. All ~~dollar~~ amounts in the consolidated financial statements and in the notes to the consolidated financial statements, except per share amounts, are in thousands unless otherwise indicated.

For the Company’s Significant Accounting Policies, please refer to its Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017.~~2019. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). Other than the adoption of ~~ASU 2016-09~~ASC 842 as of October 1, ~~2017,~~2019, there were no other significant changes to the Company’s Significant Accounting Policies during the quarter.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the

consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, management’s judgments ~~of separate units of accounting and best estimate of selling price of those units of accounting within~~with respect to its revenue arrangements; valuation of Series 1 nonconvertible preferred stock and stock-based awards; the accrual of research and development expenses, and the accounting for income taxes, including uncertain tax positions and the valuation of net deferred tax assets. Estimates are periodically reviewed in light of changes in circumstances ~~facts~~ and ~~experience.~~other facts. The future developments of the COVID-19 pandemic which may directly or indirectly impact the Company’s business include quarantines, border closures, increased border controls, travel restrictions, shelter-in-place orders and shutdowns, business closures, cancellations of public gatherings and other measures. The Company has made estimates of the impact of COVID-19 in the Company’s consolidated financial statements as of March 31, 2020. Actual results could differ from the Company’s ~~estimates~~.estimates.

~~In March 2016, the FASB issued~~The Company adopted ASU No. ~~2016-09,~~ ~~Improvements~~2016-02, Leases (Topic 842), as of October 1, 2019, using the modified retrospective method under ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. The transition method allows entities to ~~Employee Share-Based Payment Accounting~~ ~~(“ASU 2016-09”), which intends to simplify several aspects~~apply the transition requirements at the effective date rather than at the beginning of ~~accounting~~the earliest comparative period presented. The Company’s reporting for ~~share-based payment transactions, including~~comparative periods is presented in accordance with ASC 840, Leases. Adoption of the income tax consequences, classification of awards as either equity or liabilities, a choice to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This amendment is effective for the Companynew standard resulted in the ~~fiscal year beginning October 1, 2017. As a result~~recording of ~~the adoption this quarter, the Company changed its forfeiture rate policy to recognize forfeitures as they occur. Upon adoption, the cumulative impact~~right of ~~this change in policy on retained earnings~~use (“ROU”) assets and ~~deferred tax assets in the consolidated balance sheet was not material. In addition, the consolidated statements~~lease liabilities of ~~cash flows will present excess tax benefits, if any, as part of cash flows from operating activities. The Company elected to adopt this change on a prospective basis~~$7,151 and ~~therefore, excess tax benefits from prior periods in the statement of cash flow were not restated.~~$8,622, respectively. The adoption of the standard is also expected to create variability in the consolidated statements of operations in years in which the Company is expected to have taxable income, as the tax consequences of settled share-based payments will be recognized in income tax expense when share-based payment awards are settled.

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ (Topic 606) (“ASU 2014-09”) which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB has continued to issue accounting standards updates to clarify and provide implementation guidance related to Revenue from Contracts with Customers, including ASU 2016-08~~, Revenue from Contract with Customers: Principal versus Agent Considerations, ASU 2016-10,~~ ~~Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, and ASU 2016-12,~~ ~~Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients.~~ These amendments address a number of areas, including an entity’s identification of its performance obligations in a contract, collectibility, non-cash consideration, presentation of sales tax and an entity’s evaluation of the nature of its promise to grant a license of intellectual property and whether ordid not ~~that revenue is recognized over time or at a point in time.~~ The new guidance must be adopted using either a modified retrospective approach or a full retrospective approach for all periods presented. Under the modified retrospective method, the cumulative effect of applying the new standard would be recognized at the adoption date in retained earnings on the consolidated balance sheet. Under the full retrospective approach, the new standard would be applied to each prior reporting period presented. These new standards will be effective for the Company beginning October 1, 2018. Currently, the Company has only one revenue-generating contract – the AbbVie Agreement. The Company has completed its substantial performance obligations under the contract and is eligible to earn annually tiered per-product royalties on the portion of AbbVie’s net sales of HCV regimens allocable to the protease inhibitor in the regimen. The Company is in process of determining the method of adoption but under either method, the impact of adoption is not expected to have a material impact on the Company’s ~~consolidated financial statements~~results of operations or cash flows. The Company elected to use the transition package of three practical expedients, which among other things, allowed the Company to carry forward the historical lease classification. The Company has elected, under Topic 842, the further practical expedient not to separate non-lease components from the lease components to which they relate and instead to combine them and account for them as ~~presently,~~a single lease component. The Company also elected the ~~AbbVie Agreement~~accounting policy election to keep leases with a term of twelve months or less off the balance sheet and to recognize payments for those leases on a straight-line basis over the lease term.

ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. At the inception of the arrangement, the Company determines if an arrangement is a lease based on an assessment of the ~~only revenue-generating arrangement outstanding,~~terms and ~~all performance obligations under~~conditions of the ~~agreement have been achieved.~~

~~In November 2016,~~contract. Operating lease ROU assets and lease liabilities are recognized at the ~~FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~ ~~(“ASU 2016-18”) that changes the presentation of restricted cash~~commencement date, and ~~cash equivalents~~thereafter, if modified, based on the ~~statement~~present value of ~~cash flows. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling~~lease payments over the ~~beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amendment is effective for~~lease term. The lease term includes any renewal or early-termination options that the Company is reasonably assured to exercise. The present value of lease payments is determined by using the interest rate implicit in the ~~fiscal year beginning October 1, 2018, but early adoption~~lease, if that rate is ~~permissible. Upon adoption,~~readily determinable; otherwise, the Company ~~will adjust the presentation~~uses its estimated secured incremental borrowing rate for that lease term. The underlying assets of the ~~statement~~Company’s leases as of cash flows to include restricted cash related to an outstanding letter of credit collateralized by a money market fund of $608 so that it is included in the beginning balance of cash and cash equivalents.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation—Stock Compensation (Topic 718)(“ASU 2017-09”) which~~ ~~provides updated guidance about changes to the terms or conditions of a share-based payment award that requires companies to apply modification accounting under Topic 718.~~ ~~This amendment is effective for the Company in the fiscal year beginning October 1, 2018, but early adoption is permissible.~~ ~~The Company does not expect~~ the adoption date consisted of ~~ASU 2017-09 to have a material impact on its consolidated financial statements.~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~ ~~(“ASU 2016-02”), which will replace the existing guidance in ASC 840, “Leases.” The updated standard aims to increase transparency~~office and comparability among organizations by requiring lessees to recognize leased assets and leased liabilities on the consolidated balance sheets and requiring disclosure of key information about leasing arrangements. This amendment is effective for the Company in the fiscal year beginning October 1, 2019, but early adoption is permissible. The Company is currently evaluating the potential impact that ASU 2016-02 may have on its financial position and results of operations.laboratory space.

In March 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”) which requires companies to amend the amortization period for premiums on debt securities with explicit call features to be the period through the earliest call date rather than through the contractual life of the debt instrument. This amendment aims to more closely align the recognition of interest income with the manner in which market participants price such instruments. ~~This amendment is~~The Company adopted the new standard on the effective ~~for the Company in the fiscal year beginning~~date of October 1, ~~2019, but early~~2019. The adoption ~~is permissible. The Company is currently evaluating~~of the ~~potential~~standard did not have a material impact ~~that ASU 2017-08 may have~~ on ~~its~~the Company’s financial position and results of operations.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) (“ASU 2016-13”), which introduces a new methodology for accounting for credit losses on financial instruments, including available-for-sale debt securities. The guidance establishes a new “expected loss model” that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities. This amendment is effective for the Company in the fiscal year beginning October 1, 2020. The Company is currently evaluating the potential impact that ASU 2016-13 may have on its financial position and results of operations.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This standard simplifies various aspects of the income tax accounting guidance in ASC 740, including requirements related to hybrid tax regimes, the tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of entities not subject to tax, the intra-period tax allocation exception to the incremental approach, ownership changes in investments, changes from a subsidiary to an equity method investment, interim-period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim-period tax accounting. This amendment is effective for the Company in the fiscal year beginning October 1, 2021; however, early adoption is permitted. The Company is currently in the process of evaluating the impact that ASU 2019-12 may have on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

The following tables present information about the Company’s financial assets and liabilities that were subject to fair value measurement on a recurring basis as of ~~December~~March 31, ~~2017~~2020 and September 30, ~~2017~~2019, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value:

During the ~~three~~six months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, there were no0 transfers between Level 1, Level 2 and Level 3.

As of September 30, 2017, the Company’s warrant liability was comprised of the value of warrants for the purchase of its Series 1 nonconvertible preferred stock. These warrants were financial instruments that might have required a transfer of assets because of the liquidation features and were therefore recorded as liabilities and measured at fair value. These warrants expired on October 4, 2017, and are therefore no longer outstanding. The outstanding shares of Series 1 nonconvertible preferred stock are ~~also~~ measured at fair value. The fair value of these instruments was based on significant inputs not observable in the market, which represented a Level 3 measurement within the fair value hierarchy. The Company utilized a probability-weighted valuation model which takes into consideration various outcomes that may require the Company to transfer assets upon exercise. Changes in the fair value of the ~~warrant liability and~~ Series 1 nonconvertible preferred stock are recognized in other income (expense), net in the consolidated statements of operations.

The recurring Level 3 fair value measurements of the Company’s outstanding ~~warrant liability and~~ Series 1 nonconvertible preferred stock using probability-weighted discounted cash flow include the following significant unobservable inputs:

The following table provides a rollforward of the aggregate fair values of the Company’s ~~warrants for the purchase of Series 1 nonconvertible preferred stock and the~~ outstanding Series 1 nonconvertible preferred stock for which fair value is determined by Level 3 inputs:

As of ~~December~~March 31, ~~2017~~2020 and September 30, ~~2017,~~2019, the fair value of available-for-sale marketable securities, by type of security, was as follows:

As of ~~December~~March 31, ~~2017,~~2020 and September 30, 2019 marketable securities consisted of ~~short-term marketable securities, which are~~ investments that mature within one year, with the exception of certain corporate bonds and ~~long-term marketable securities, with~~U.S. Treasury notes, which have maturities between one and three years and an aggregate fair value of ~~$77,047, which consist of certain U.S. Treasury notes~~$80,099 and ~~corporate bonds that have maturities of more than one year but not more than three years.~~$65,013, respectively.

Accrued expenses and other current liabilities, as well as other long-term liabilities, consisted of the following as of ~~December~~March 31, ~~2017~~2020 and September 30, ~~2017:~~2019:

The Company has a Collaborative Development and License Agreement (as amended, the “AbbVie Agreement”), with AbbVie to identify, develop and commercialize HCV NS3 and NS3/4A protease inhibitor compounds, including paritaprevir and glecaprevir, under which the Company has received license payments, proceeds from a sale of preferred stock, research funding payments, milestone payments and royalties totaling approximately ~~$525,000~~$975,000 through ~~December~~March 31, ~~2017.~~2020. Since the Company ~~completed~~satisfied all of its performance obligations under the AbbVie Agreement by the end of fiscal 2011, all milestone payments received since then have been recognized as revenue when the milestones were achieved by AbbVie.

The Company is ~~also~~ receiving annually tiered royalties per Company protease product ranging from ~~the low double digits~~ten percent up to twenty percent, or on a blended basis from ~~the low double digits~~ten percent up to the high teens, on the portion of AbbVie’s calendar year net sales of each HCV regimen that is allocated to the protease inhibitor in the regimen. Beginning with each January 1, the cumulative net sales of a given royalty-bearing protease inhibitor product start at zero for purposes of calculating the tiered royalties on a product-by-product basis.

~~During the three months ended December 31, 2017, the Company earned and recognized milestone revenue of $15,000~~ ~~upon AbbVie’s achievement of commercialization regulatory approval in Japan for~~ ~~MAVIRET™~~.

In October and November 2010, the Company issued warrants to purchase up to a total of 2,000 shares of Series 1 nonconvertible preferred stock. As these warrants were financial instruments that might have required the Company to transfer assets, these instruments are classified as liabilities. ~~The following table summarizes the activity of the warrants to purchase Series 1 nonconvertible preferred stock:~~

As of ~~December~~March 31, ~~2017,~~2020, 1,931 shares of Series 1 nonconvertible preferred stock were issued and outstanding. ~~As this preferred stock may require the Company to transfer a fixed amount of assets,~~Since these shares qualify as a derivative, the outstanding shares are ~~classified~~carried at fair value as ~~liabilities.~~

The Company ~~has granted~~grants stock-based awards, including stock options and unit awards under its 2019 Equity Incentive Plan (the “2019 Plan”), which was approved by its stockholders on February 28, 2019. The Company also has outstanding unit awards, stock options and restricted stock ~~units, and performance share units,~~unit awards under its ~~existing~~ 2012 Equity Incentive Plan (the “2012 Plan”)~~. The Company also has outstanding stock-based awards under~~ and its amended and restated 1995 Equity Incentive Plan (the “1995 Plan”), but is no longer granting awards under ~~this plan.~~these plans.

The following table summarizes stock option activity, including performance-based options, for the year-to-date period ending ~~December~~March 31, ~~2017:~~2020:

The Company awards both performance share units, or PSUs, and relative total stockholder return units, or rTSRUs, to its executive officers. The number of units represents the target number of shares of common stock that may be earned; however, the actual number of shares that may be earned ranges from 0% to ~~200%~~150% of the target number.The following table summarizes PSU and rTSRU activity for the year-to-date period ending ~~December~~March 31, ~~2017:~~2020:

During the three months ended December 31, 2016, the Company awarded restricted stock units to its employees, which vest 50% in three years and 50% in four years, provided the employee remains employed with the Company at the time of vesting. The fair value per share of these awards iswas determined based on the intrinsic value of the stock on the date of grant and ~~will be~~is being recognized as stock-based compensation expense over the requisite service period. The following table summarizes the restricted stock unit activity for the year-to-date period ending ~~December~~March 31, ~~2017:~~2020:

During the three and six months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, the Company recognized the following stock-based compensation expense:

During the ~~three~~six months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, the Company recognized stock-based compensation expense for ~~PSUs and~~ performance-based ~~options~~stock units for which vesting became probable upon achievement of performance-based targets that occurred during their respective performance periods.

As discussed in Note 2, the Company adopted ASU 2016-09 during the three months ended December 31, 2017. ASU 2016-09 intends to simplify several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, a choice to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. As a result of the adoption, the Company changed its forfeiture rate policy to recognize forfeitures as they occur. Upon adoption, the cumulative impact of this change in policy on retained earnings and deferred tax assets in the consolidated balance sheet was not material. In addition, the consolidated statements of cash flows will present excess tax benefits, if any, as part of cash flows from operating activities. The Company elected to adopt this change on a prospective basis and, therefore, excess tax benefits from prior periods in the statement of cash flow were not retroactively restated. The adoption of the standard is also expected to create variability in the consolidated statements of operations in years in which the Company is expected to have taxable income, as the tax consequences of settled share-based payments will be recognized in income tax expense when share-based payment awards are settled.

As of ~~December~~March 31, ~~2017,~~2020, the Company had an aggregate of ~~$32,132~~$47,904 of unrecognized stock-based compensation cost, which is expected to be recognized over a weighted average period of ~~2.7~~2.6 years.

Basic and diluted net income (loss) per share attributable to common stockholders was calculated as follows for the three and six months ended ~~December~~March 31, ~~2017~~2020 and ~~2016 (in thousands, except per share data):~~2019:

The impact of certain common stock equivalents was excluded from the computation of diluted net loss per share for the periods in which the Company ~~was in~~incurred a net loss ~~position~~ since the impact of such common stock equivalents would have been anti-dilutive.

The Company’s provision for income taxes consists of federal and state taxes necessary to align the Company’s year-to-date tax provision with the annual effective rate that it expects to achieve for the full year. At each interim period, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary. The authoritative guidance for accounting for income taxes allows use of the year-to-date effective tax rate (the “discrete method”) when a reliable estimate of the estimated annual effective tax rate cannot be made. During the six months ended March 31, 2020, the Company determined the use of the discrete method is more appropriate than the annual effective tax rate method due to the sensitivity of the Company’s tax rate to small changes in projected pre-tax earnings, which can result in significant variations in the customary relationship between income tax expense and pre-tax income. As such, the Company has discretely calculated the tax provision based on pre-tax results through the six months ended March 31, 2020. For the three months ended ~~December~~March 31, ~~2017~~2020 and ~~2016,~~2019, the Company recorded an income tax ~~(expense)~~ benefit of ~~$(3,644)~~$3,920 and ~~$1,542,~~$3,204, respectively, both of which ~~was~~were attributable to the Company’s domestic operations. ~~During~~The Company has no foreign operations and therefore, has not provided for any foreign taxes. For the ~~three~~six months ended ~~December~~March 31, ~~2017, income tax expense included a revaluation adjustment against deferred tax assets of $(3,859) due to a decrease in~~2020 and 2019, the ~~federal corporate income tax rate as enacted under the U.S. Tax Cuts and Jobs Act (the “Tax Act”). The~~ Company ~~also~~ recorded an income tax benefit of ~~$215 during~~$2,416 and income tax (expense) of ($526), respectively. Although the ~~three~~Company reported pre-tax income for the six months ended ~~December~~March 31, 2017, primarily related to excess tax benefits for stock option activity which is now recorded in income tax expense (benefit) due to the adoption of ASU 2016-09 during the three months ended December 31, 2017.

~~Estimates used to prepare our~~ ~~income tax expense are based on the Company’s initial analysis of~~ ~~the Tax Act enacted in December 2017. Given the complexity of the act, anticipated guidance from the U. S.~~ ~~Treasury~~ ~~regarding implementation of the act, and potential for additional guidance from the~~ ~~SEC and~~ ~~the~~ ~~Financial Accounting Standards Board~~ ~~related to the act, these estimates may be adjusted during fiscal 2018 to reflect any such guidance provided.~~

~~During~~ ~~the three months ended December 31, 2016,~~2020, the Company recorded an income tax benefit due to ~~the Company’s loss before income taxes for the quarter as well as~~ federal research and development tax credits, release of an uncertain tax position and stock award-related activity during the year. For the six months ended March 31, 2019, the Company recorded income tax (expense) of ($526) driven by its pre-tax income which ~~reduced taxes payable~~was offset by federal research and ~~were reflected in~~development tax credits and employee stock award-related activity during the ~~Company’s annual effective tax rate.~~prior year.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. The Company’s tax years are still open under statute from ~~2013~~2016 to the present. Earlier years may be examined to the extent that tax credit or net operating loss carryforwards are used in future periods. ~~The~~During 2018, the Company ~~is currently under~~received notice of examination by the Internal Revenue Service (“IRS”) for the year ending September 30, 2016. ~~No adjustments have been~~The Company received and agreed to a notice of proposed adjustment from the IRS, which was paid in September 2018, the amount of which was immaterial to ~~date.~~the consolidated financial statements. The Company is in the process of finalizing the completion of the IRS audit. In addition, during October 2018 the Company received notice of examination by the Massachusetts Department of Revenue (“DOR”) for the years ending September 30, 2015 and September 30, 2016. The Company received a notice of proposed adjustment from the DOR, the amount of which was immaterial to the consolidated financial statements. The Company finalized the adjustment with the DOR during the three months ended March 31, 2020. The Company has not received notice of examination by any other jurisdictions for any other tax year open under statute.

The Company had an unrecognized tax ~~benefit of $1,188~~benefits totaling $764 and ~~$1,175~~$1,650 as of ~~December~~March 31, ~~2017~~ 2020, and September 30, ~~2017,~~2019, respectively. Unrecognized tax benefits represent tax positions for which reserves have been established. The Company’s policy is to record interest and penalties related to uncertain tax positions as part of its income tax provision.

~~The~~In conjunction with the finalization of the DOR audit, the Company ~~has~~released an office and laboratory lease that expires in September 2022. Payment escalation as specified in the lease agreement is accrued such that rent expense is recognized on a straight-line basis over the termuncertain tax benefit of ~~occupancy. The Company recorded rent expense of $506 for both~~$539 during the three months ended ~~December~~March 31, 2020 which was reflected in the income tax benefit reported during the period.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). Under the CARES Act, the Company is permitted to carry back net operating losses originating beginning in fiscal 2018 through fiscal 2020 for up to five years. Net operating loss carrybacks were previously prohibited under the Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize net operating loss carryforwards to offset taxable income in fiscal years 2018, 2019 or 2020. In addition, the CARES Act makes qualified improvement property eligible for 15-year cost-recovery and ~~2016.~~100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to the Company’s consolidated financial statements for the three months ended March 31, 2020.

The Company has 2 real estate leases for properties located in Watertown, Massachusetts. The first lease, for office and laboratory space at 500 Arsenal Street, was effective in fiscal 2011 and expires in September 2022 with an option to extend the lease term for an additional five years. The second lease, for office space located at 400 Talcott Avenue, was effective September 2018 and expires in August 2024 with two options to extend the lease term for an additional three years each. The options to extend the lease terms were not included in the right-of-use assets and lease liabilities as they were not reasonably certain of being exercised. The lease payments for the office and laboratory space include fixed lease payments that escalate over the terms of the leases. Additionally, the Company’s office and laboratory space leases require the Company to pay for certain operating expenses based on actual costs incurred and therefore as the amounts are variable in nature are expensed in the period incurred and included in variable lease costs.

In October 2019, the Company entered into an agreement to lease units of equipment over eighteen-month lease periods commencing upon shipment of each unit. The lease agreement contains an option to terminate the lease early, however this early-termination option was not included in the right-of-use asset and lease liability as it was not reasonably certain of being exercised. The equipment lease requires the Company to pay for certain consumable and peripheral equipment supplies based on actual costs incurred and therefore, as these costs are variable in nature, they are expensed in the period incurred and included in variable lease costs.

The components of lease expense for the Company’s real estate and equipment leases were as follows:

Incremental borrowing rates were used to calculate the present value of the Company’s real estate and equipment leases.

Future annual minimum lease payments under the Company’s real estate and equipment operating leases as of March 31, 2020 were as follows:

As previously disclosed in the Company’s 2019 Annual Report on Form 10-K and under the previous lease accounting standard, ASC 840, Leases,the following table summarizes the future minimum lease payments due under the operating leases as of September 30, 2019:

In connection with one of the ~~lease,~~real estate leases, the Company has ~~outstanding~~ a ~~$608~~total outstanding letter of credit in the amount of $608 as of March 31, 2020 and September 30, 2019, collateralized by a money market account. As of ~~December~~March 31, ~~2017~~2020 and September 30, ~~2017,~~2019, the Company classified the $608 related to the ~~letter of credit~~money market account as long-term restricted cash. ~~Additionally, the lease, as amended, included a $598 tenant improvement allowance from the landlord, which is accounted for as a capital lease obligation.~~

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. The Company currently is not a party to any ~~threatened or pending~~ litigation. However, third parties might allege that the Company or its collaborators are infringing their patent rights or that the Company is otherwise violating their intellectual property rights. Such third parties may resort to litigation against the Company or its collaborators, which the Company has agreed to indemnify. With respect to some of these patents, the Company expects that it ~~could~~will be required to obtain licenses and could be required to pay license fees or royalties, or both. These licenses may not be available on acceptable terms, or at all. A costly license, or inability to obtain a necessary license, would have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from services to be provided to the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and its executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. In addition, the Company maintains officers and directors insurance coverage. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its financial statements as of ~~December~~March 31, ~~2017.~~2020.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto for our fiscal year ended September 30, ~~2017~~2019 included in our Annual Report on Form 10-K for that fiscal year which is referred to as our ~~2017~~2019 Form 10-K. Please refer to our note regarding forward-looking statements on page 2 of this Form 10-Q, which is incorporated herein by this reference.

The Enanta name and logo are our trademarks. This Quarterly Report also includes trademarks, trade names and service marks of other persons. All other trademarks, trade names and service marks appearing in this Quarterly Report are the property of their respective owners.

We are a biotechnology company that uses our robust, chemistry-driven approach and drug discovery capabilities to create small molecule drugs ~~primarily~~ for the treatment of viral infections and liver diseases. We discovered glecaprevir, the second of two protease inhibitors discovered and developed through our collaboration with AbbVie ~~and marketed as part of AbbVie’s new direct-acting antiviral (DAA) regimen under the tradenames MAVYRET™ (U.S.) or MAVIRET™ (ex-U.S.) (glecaprevir/pibrentasvir)~~ for the treatment of chronic hepatitis C virus, or HCV. ~~The other protease inhibitor under our HCV collaboration~~Glecaprevir is co-formulated as part of AbbVie’s ~~initial DAA regimens~~leading brand of direct-acting antiviral (DAA) combination treatment for ~~the treatment of chronic~~ HCV and marketed under the tradenames ~~VIEKIRA PAK~~MAVYRET^®~~(paritaprevir/ritonavir/~~

~~ombitasvir/dasabuvir)~~ (U.S.) ~~or VIEKIRAX~~and MAVIRET^® ~~(paritaprevir/ritonavir/ombitasvir)~~ (ex-U.S.) (glecaprevir/pibrentasvir). Our royalties from our AbbVie collaboration and, to the extent necessary, our existing financial resources, provide us funding to support our ~~wholly owned~~wholly-owned research and development ~~efforts~~programs, which are ~~currently~~primarily focused on the following disease ~~targets:~~

~~non-alcoholic steatohepatitis, or NASH, a liver disease estimated to affect approximately 6 million individuals~~targets with the following compounds in clinical development, all of which have been granted Fast Track designation by the U.S. ~~alone;~~Food and Drug Administration (FDA):

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EDP-938, for respiratory syncytial virus, or RSV, infection, the most common cause of bronchiolitis and pneumonia in young children and a significant cause of respiratory illness in older adults, with estimates suggesting that approximately 200,000 hospitalizations in the U.S. and EU occur each year in children under the age of two and approximately 170,000 hospitalizations in these regions occur each year in adults over the age of 65;

~~primary biliary cholangitis, or PBC, a chronic liver disease that slowly destroys bile ducts in the liver, which affects an estimated 17,000 individuals in the U.S.;~~

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EDP-305, for non-alcoholic steatohepatitis, or NASH, a liver disease estimated to affect approximately 1.5% to 6.5% of the population in the developed world (which translates to approximately 5 to 20 million individuals in the U.S. alone); and

respiratory syncytial virus, or RSV, the most common cause of bronchiolitis and pneumonia in children under one year of age in the U.S., resulting in an estimated 75,000 to 125,000 hospitalizations each year in the U.S.~~; and~~

~~hepatitis B virus, or HBV, the most prevalent chronic hepatitis, which is estimated to affect approximately 250 million individuals worldwide.~~

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EDP-514, for hepatitis B virus, or HBV, the most prevalent chronic hepatitis, which is estimated to affect approximately 250 million individuals worldwide.

We had ~~$297.5~~$435.4 million in cash and marketable securities at ~~December~~March 31, ~~2017. In the first quarter of our fiscal year 2018, we earned $23.1 million in~~2020. We expect cash flows from continuing royalties on our HCV products and, to the portion of AbbVie’s net sales of its HCV regimens allocated to glecaprevir or paritaprevir and earned our remaining $15.0 million milestone under our collaboration with AbbVie as a result of commercialization regulatory approval of ~~MAVIRET™~~ ~~in Japan. We expect~~extent necessary, our existing financial resources, ~~and cash flows~~ will allow us to continue to fund our wholly owned research and development programs for the foreseeable future.

Our Wholly Owned Programs

Our ~~wholly owned~~wholly-owned research and development programs are in ~~liver disease (non-virology), namely NASH and PBC, and in~~ virology, namely RSV, HBV, human metapneumovirus, or hMPV, and ~~HBV:~~

SARS-CoV-2, and in NASH, ~~and PBC:~~We are working on multiple compounds that selectively bind to and activate the farnesoid X receptor, or FXR. We plan to develop these compounds, referred to as FXR agonists, for use in the treatment of NASH and PBC, both of which area non-viral liver diseases with very few therapeutic options. Our lead FXR agonist, EDP-305, represents a new class of FXR agonist designed to take advantage of increased binding interactions with the receptor. We believe this class is significantly different from other FXR agonists in clinical development.disease:

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~~In October 2017, we announced results of~~RSV, hMPV and SARS-CoV-2: We have a ~~Phase 1a/b~~ clinical ~~study of EDP-305,~~stage program for RSV, for which ~~was generally safe~~the lead asset is EDP-938. We recently launched discovery efforts for hMPV, a virus that causes respiratory infection with symptoms similar to RSV, and ~~well tolerated over a broad range of single and multiple doses with pharmacokinetic data supporting once daily oral dosing. Additional data from this study were also presented at~~for SARS-CoV-2, the 2018 NASH-TAG conference. The study included 98 healthy volunteer subjects, or HV subjects, and 48 subjects who were obese and with or without pre-diabetes or type 2 diabetes, whom we refer to as subjects with presumptive non-alcoholic fatty liver disease, or PN subjects.virus that causes COVID-19.

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EDP-305 exhibited strong engagement of the FXR receptor as evidenced by increased levels of FGF19 and reduced levels of C4, both of which are monitored as downstream markers indicating FXR receptor activity.

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~~Results support the ability to administer EDP-305 in future trials at doses that neither elicit clinically significant changes in lipids nor result in pruritus (itching).~~

Since November 2016, we have presented data at the 2016 and 2017 annual meetings of the American Association for the Study of Liver Diseases (AASLD), the 2017 and 2018 NASH-TAG conferences and the 2017 International Liver Congress (ILC) that demonstrated that EDP-305 is a highly selective FXR agonist and shows more potent activity in a variety of~~in vitroandin vivoNASH models compared to the most advanced NASH candidate in development today, obeticholic acid, or OCA.~~

~~We initiated a Phase 2 clinical study of EDP-305 in PBC patients in December 2017.~~

~~We have recently initiated recruitment of a Phase 2 clinical study of EDP-305 in NASH patients.~~

~~EDP-305 has been granted Fast Track designation by the U.S. Food and Drug Administration (FDA) for the treatment of NASH patients with liver fibrosis and separately for the treatment of PBC.~~

~~In addition, we are~~ ~~pursuing research in other classes of FXR agonists as well as other mechanisms that may provide therapeutic benefit in NASH, any of which could be used as combination therapies for NASH.~~

~~RSV:~~We ~~have selected~~discovered EDP-938, a potent N-protein inhibitor of activity of both major subgroups of RSV, referred to as RSV-A and RSV-B, and have been investigating it as our first ~~development~~clinical candidate for RSV. ~~We believe~~ EDP-938 is ~~differentiated from fusion inhibitors currently~~the only N-protein inhibitor in ~~development for RSV because N-protein inhibitors directly target the viral replication process of RSV and have demonstrated high barriers to resistance against RSV~~ ~~in vitro~~.clinical development.

In June ~~2017,~~2019, we presented preclinical data demonstrating that EDP-938 is a potent inhibitor of both RSV-A and RSV-B activity, maintaining antiviral activity post-infection while presenting a high barrier to resistance ~~in vitro. EDP-938 demonstrated a greater than 4-log reduction in viral load in an animal model challenged with RSV. Further, EDP-938 maintained antiviral potency across all clinical isolates tested~~ ~~in vitro, as well as virus that was resistant to fusion inhibitors. The compound inhibited RSV at a post-entry, replication step and maintained its activity~~ ~~in vitro~~ ~~when given 24 hours post infection. In addition, combination studies~~announced positive topline results from our Phase 2a human challenge study of EDP-938 in healthy adults infected with ~~other types~~a specific strain of ~~RSV inhibitors, such as fusion inhibitors, showed synergistic antiviral effects.~~RSV.

WeIn November 2019, we initiated aour first Phase ~~1 clinical~~2b study of EDP-938, which is in adult outpatients with community-acquired RSV infection. This study, named RSVP, is designed to help us better understand the feasibility of this direct-acting antiviral (DAA) therapy. We completed dosing for the 2019-2020 winter RSV season in the ~~fourth~~U.S. and are on track with plans to move the study to the Southern Hemisphere. Given uncertainties created by the spread of COVID-19 in that region, we are also keeping our North American sites ready for reactivation in the fall and winter RSV season and we are planning to add a substantial number of sites in Europe. If we can complete enrollment of the study in the Northern Hemisphere next winter, we would expect to have data in the third calendar quarter of ~~calendar 2017.~~2021.

~~We anticipate starting a Phase 2a challenge~~Concurrent with the RSVP study, we are also planning to initiate two additional RSV studies in the ~~second half~~fourth calendar quarter of ~~2018. The challenge study~~2020, one in pediatric patients and one in adult transplant patients who are immune-compromised. Fortunately, to date, it appears the health effects of COVID-19 in children generally have not been as severe as in adults, and we anticipate parents will ~~test~~continue to take ill children to a doctor even if the ~~effect of EDP-938 on volunteers who~~pandemic continues into the fall and winter RSV season in the Northern Hemisphere. Further, we expect that adult transplant patients will be ~~infected with RSV~~on high alert for respiratory illness and, given their immune-suppressed condition, we hope they would be willing to participate in a clinical study if it can be performed in a way that does not increase their risk of COVID-19 infection. However, we recognize there are potentially other challenges for the transplant study, including fluctuations in the ~~course~~number of transplants being performed, which will depend on how the ~~study.~~pandemic evolves later in the year.

~~HBV:~~ ~~We also have a~~Since announcing our new drug discovery program ~~to discover~~for hMPV in January 2020, we are currently optimizing nanomolar inhibitor leads against this virus and ~~develop~~are working toward identifying our first clinical candidate for this indication.

Additionally, in March 2020, we announced new ~~chemical entities~~discovery efforts for the treatment of ~~HBV. Our initial focus is~~COVID-19, taking a two-pronged approach. We are testing compounds from our antiviral compound library for potential activity against SARS-CoV-2, as well as initiating a drug discovery program using our expertise in direct-acting antiviral mechanisms to discover new compounds to treat COVID-19.

NASH: We are working on ~~core inhibition,~~compounds EDP-305 and EDP-297, referred to as FXR agonists, that selectively bind to and activate the Farnesoid X receptor, or FXR. These compounds represent a ~~mechanism~~class of FXR agonists designed to take advantage of increased binding interactions with ~~early clinical validation. We~~this receptor. FXR agonists have shown efficacy in NASH and we believe that ~~it may be necessary~~this mechanism has promise as an important component in potential combination therapies for NASH. We plan to ~~utilize more than~~develop at least one ~~compound/mechanism~~of these compounds primarily for ~~the treatment~~use in combination treatments of ~~HBV and therefore we are pursuing multiple approaches. We continue to make progress in discovering, characterizing, and seeking patent protection for new core inhibitors of HBV~~NASH, a liver disease with ~~the goal of identifying a development candidate in 2018. In addition, we are conducting preclinical experiments with compounds we have discovered that use other mechanisms that target HBV.~~very few therapeutic options.

We were ready to initiate dosing of a 72-week Phase 2b study, named ARGON-2, with histological endpoints, including fibrosis in biopsy-confirmed NASH patients treated with EDP-305 or placebo in March 2020. However, due to the COVID-19 pandemic, we have paused recruitment and dosing of the study. We are hopeful we can resume this trial within the next couple of months, depending on whether enough of our clinical trial sites for this study are able to open in the context of COVID-19. The study will include an interim analysis to enhance our ability to seek opportunities more quickly for development of EDP-305 in combinations with other mechanisms for NASH.

We also plan to initiate Phase 1 development of EDP-297 later in the third calendar quarter of 2020, subject to a determination that it is safe to initiate the healthy volunteer study at the trial site in the context of the COVID-19 pandemic.

In addition, we have been pursuing research in other mechanisms that may provide therapeutic benefit in NASH, any of which could be used in combination with an FXR agonist or other therapies for NASH.

We also have completed a Phase 2a study, named INTREPID, to assess the safety, tolerability, pharmacokinetics and efficacy of EDP-305 in subjects with primary biliary cholangitis, or PBC. While the INTREPID study did not meet the primary endpoint in subjects with PBC in the intent-to-treat analysis (ITT), as defined by at least a 20% reduction in ALP, several key biomarkers across the two dosing arms had statistically highly significant changes compared to the placebo arm, demonstrating strong target engagement of the FXR mechanism by EDP-305. However, rather than conducting further dose selection studies with EDP-305 in PBC, a disease for which there is already an approved second-line FXR agonist therapy and for which generic fibrates are showing benefit in some studies, we intend to devote our future efforts with EDP-305 only to NASH.

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HBV: In July 2019, we announced initiation of a Phase 1a/1b clinical study of EDP-514, our lead core inhibitor for the treatment of hepatitis B virus (HBV).

The randomized, double-blind, placebo-controlled Phase 1a/1b study is designed to evaluate first the safety, tolerability and pharmacokinetics (PK) of single ascending doses (SAD) and multiple ascending doses (MAD) of EDP-514 in healthy subjects, and then the antiviral activity of EDP-514 in patients with chronic HBV infection that are being suppressed with nucleos(t)ide-reverse-transcriptase treatment – the current standard of care, whom we refer to as nuc-suppressed HBV patients.

The SAD and MAD part of the study (Part 1) has been completed successfully. Overall, EDP-514 demonstrated a favorable safety profile in healthy subjects for up to 14 days and was well tolerated with all treatment emergent adverse events being mild in intensity and with no discontinuations due to adverse events. Further, there were no significant individual laboratory data findings or pattern of abnormalities and EDP-514’s pharmacokinetic profile demonstrated good blood levels that support once-daily dosing.

Based on these results, we initiated Part 2 of the study to evaluate EDP-514 in nuc-suppressed patients in the first quarter of calendar 2020. However, due to the COVID-19 pandemic, we have paused recruitment of this study. We are regularly evaluating the circumstances around this study and are hoping to resume enrollment within the next couple of months, depending on whether enough of our clinical sites are able to open.

Finally, in the second calendar quarter of 2020, we are also planning to initiate a separate Phase 1b study in patients with chronic HBV infection who are not on HBV therapy and have high levels of virus in their blood, whom we refer to as viremic HBV patients.

We have utilized our internal chemistry and drug discovery capabilities to generate all of our development-stage programs. We continue to invest substantial resources in research programs to discover back-up compounds as well as new compounds targeting different mechanisms of action, both in our disease areas of focus as well as potentially in other disease areas.

~~Licensed~~Our Out-Licensed Products

Through our Collaborative Development and License Agreement with AbbVie, we have ~~developed~~discovered and ~~licensed~~out-licensed to AbbVie two protease inhibitor compounds that have been clinically tested, manufactured, and commercialized by ~~AbbVie. To date, we~~AbbVie as part of its combination regimens for HCV. We have earned ~~a total of~~all $330.0 million in milestone payments under the agreement related to clinical development and commercialization regulatory approvals of these regimens in major markets:

~~Glecaprevir:~~ Glecaprevir is the protease inhibitor we discovered that was developed by AbbVie in a fixed-dose combination with its NS5A inhibitor, pibrentasvir, for the treatment of HCV. This combination, currently marketed under the brand name MAVYRET™ in the U.S. and MAVIRET™ (ex-U.S.) and referred to in this report as MAVYRET/MAVIRET, is a new, once daily, all oral, fixed-dose, ribavirin-free treatment for HCV genotypes 1-6, or GT1-6, which is referred to as being pan-genotypic. In the EU, U.S. and Japan it is approved as an 8-week treatment for patients without cirrhosis and new to treatment. Today, these patients are estimated to represent the majority of HCV patients in the developed country markets.

~~Our economics from AbbVie’s MAVYRET/MAVIRET consist of two components:~~

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~~We receive~~Glecaprevir is the protease inhibitor we discovered that was developed by AbbVie in a fixed-dose combination with its NS5A inhibitor, pibrentasvir, for the treatment of HCV. This patented combination, currently marketed under the brand names MAVYRET^® (U.S.) and MAVIRET^® (ex-U.S.) is referred to in this report as MAVYRET/MAVIRET. This regimen is a novel, once daily, all oral, fixed-dose, ribavirin-free treatment for HCV genotypes 1-6, or GT1-6, which is referred to as being pan-genotypic. In the U.S., EU and Japan it is approved as an 8-week treatment for patients with and without compensated cirrhosis and new to treatment. Today, these patients are estimated to represent the majority of HCV patients in the developed country markets where MAVYRET/MAVIRET is sold by AbbVie and where MAVYRET/MAVIRET remains the only 8-week pan-genotypic HCV treatment.

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Since August 2017, substantially all of our royalty revenue has been derived from AbbVie’s net sales of MAVYRET/MAVIRET. Our ongoing royalty revenues from this regimen consist of annually tiered, double-digit, per-product royalties on 50% of the calendar year net sales of the 2-DAA glecaprevir/pibrentasvir combination in MAVYRET/MAVIRET. These royalties are calculated separately from the royalties on AbbVie’s paritaprevir-containing ~~regimens.~~regimens, and the annual royalty tiers for each product return to the lowest tier for sales on and after each January 1.

~~We also earned all available milestones, totaling $80.0 million, for commercialization regulatory approvals of the glecaprevir/pibrentasvir combination in the U.S., EU and Japan~~.

The U.S., EU and Japan authorizations for the MAVYRET/MAVIRET combination of glecaprevir and pibrentasvir, and AbbVie’s applications for approval of MAVYRET/MAVIRET in other jurisdictions, are supported by the following studies:

~~8 weeks for treatment-naïve, non-cirrhotics:~~ In November 2016, results from several Phase 3 studies of this combination demonstrated 97.5% of chronic HCV infected patients without cirrhosis and new to treatment across all major genotypes (GT1-6) achieved sustained virologic response at 12 weeks post-treatment, referred to as SVR₁₂~~, with just 8 weeks of MAVYRET/MAVIRET treatment.~~

~~8 weeks with chronic kidney disease:~~ Results were also presented from AbbVie’s EXPEDITION-4 study in chronic HCV patients with chronic kidney disease (CKD), in which 98% of patients (n=102/104) across all major genotypes (GT1-6) achieved SVR₁₂~~with 12 weeks of treatment with MAVYRET/MAVIRET.~~

~~8 weeks for GT-3:~~Data from AbbVie’s ENDURANCE-3 study were presented at the 2017 ILC, demonstrating that 95% of patients with challenging-to-treat, genotype 3 (GT3) chronic HCV infection, without cirrhosis and new to treatment, achieved SVR₁₂ ~~after 8 weeks of treatment with MAVYRET/MAVIRET.~~

~~12 weeks for compensated cirrhosis:~~ Data from AbbVie’s EXPEDITION-1 study were also presented at the 2017 ILC, demonstrating that 99% of HCV-infected patients with genotype 1, 2, 4, 5 or 6 and compensated cirrhosis (Child-Pugh A) achieved SVR₁₂ ~~following 12 weeks of MAVYRET/MAVIRET treatment without ribavirin~~.

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~~Paritaprevir:~~ Paritaprevir is the protease inhibitor contained in AbbVie’s initial HCV treatment regimens currently marketed in the U.S., EU, Japan and other countries around the world under the trade names VIEKIRA PAK^®~~, VIEKIRAX~~^®, ~~VIEKIRAX XR™ and TECHNIVIE~~^®~~. First approved and sold in the U.S. in December 2014 for treatment of GT-1 HCV, AbbVie’s HCV regimens containing paritaprevir are now also approved for GT-4 HCV.~~

The following table summarizes our product development pipeline in our liver disease and virology programs:

COVID-19 Update

The current COVID-19 pandemic has presented substantial challenges for public health and economies around the world, and it is affecting our clinical trials and business operations, as well as the U.S. financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and public health actions taken to contain it, as well as the cumulative economic impact of both of those factors.

We are continuing to assess the potential impact of the COVID-19 pandemic on our business and operations, including our expenses, clinical trials and royalty revenues. Our employees have been working from home since early March 2020, including personnel in our laboratories, which has reduced to some extent our spending on laboratory operations. Since our third-party contract manufacturing partners continue to operate at or near normal levels producing drug substance and drug product for our research and clinical development programs, we currently do not anticipate any material interruptions in our supply chain, but it is possible that may change. We have paused enrollment in our two ongoing clinical trials, including ARGON-2 which had only just been initiated and had not yet enrolled any patients. While we are continuing with plans to initiate four additional clinical trials before the end of calendar 2020, it is unclear what impact, if any, the COVID-19 pandemic may have on the timeline for initiation and completion of all or any of these clinical trials, including the ones that are currently paused.

With regard to our royalty revenue, on May 1, 2020 AbbVie reduced its calendar 2020 HCV sales estimate from $2.5 billion to $2.3 billion, noting it was due in part to lower patient volumes in select international markets where patients are treated in hospitals affected by COVID-19. While the evolving impact of COVID-19 will likely continue to affect aspects of our business, including those described above, we remain capable of funding our research and development programs for the foreseeable future with the current level of royalty revenue and our existing cash and short-term and long-term investments, which totaled $435.4 million at March 31, 2020.

Please see Item 1A “Risk Factors” in this quarterly report for additional discussion of risks and potential risks of the COVID-19 pandemic on our business, results of operations and financial condition.

Financial Operations Overview

We are currently funding all research and development for our wholly owned programs. We expect to incur substantially greater expenses as we continue to advance our FXR agonist program for NASH and PBC. We have completed a Phase 1 study and initiated a Phase 2 study in PBC patients in calendar 2017 and have recently initiated recruitment of a Phase 2 study in NASH patients. We also initiated a Phase 1 clinical study of our lead RSV candidate, EDP-938, in the ~~fourth quarter of calendar 2017~~ and plan to initiate a Phase 2a challenge study in RSV in the second half of 2018. We expect to increase expenses in fiscal 2018 as we conduct these clinical studies and advance other compounds into substantial preclinical development.

~~Since going public in 2013, we have devoted substantially all of our resources to~~wholly-owned programs, which are targeted towards the discovery and development of novel compounds for the treatment of viral infections and liver diseases. ~~For the periods included in this report~~As of May 2020, we have ~~funded~~completed the RSV season in the U.S. in our RSVP study, and are on track with plans to move this Phase 2b study to the Southern Hemisphere. Given uncertainties created by the spread of COVID-19 in that region, we are also keeping our North American sites ready for reactivation in the fall and winter RSV season and we are planning to add a substantial number of sites in Europe for that season. If we can complete enrollment of the study in the Northern Hemisphere next winter, we would expect to have data in the third calendar quarter of 2021. We also plan to initiate additional Phase 2 RSV studies in the fourth calendar quarter of 2020, one in pediatric patients and a second in adult transplant patients.

In the first calendar quarter of 2020, we announced data from our Phase 1 study of EDP-514 in healthy volunteers and initiated a Phase 1b study in nuc-suppressed HBV patients. Recruitment for this study was paused due to the COVID-19 pandemic. We are regularly evaluating the circumstances around this study and are hoping to resume enrollment within the next two months depending on when our clinical trial sites are able to open. We also plan to initiate a separate Phase 1b study of EDP-514 in the second calendar quarter of 2020 in viremic HBV patients.

Regarding NASH, we were ready to initiate our ARGON-2 study of EDP-305 in NASH patients in March 2020, but we paused that study due to the COVID-19 pandemic. We are hopeful that we will be able to resume this trial within the next two months, depending on whether enough of our clinical trial sites for this study are able to open in the context of the COVID-19 pandemic. We also plan to start a Phase 1 study of EDP-297, our FXR follow-on development candidate, in the third calendar quarter of 2020.

As a result of our clinical development programs, as well as efforts to advance other compounds into preclinical development, we expect to incur greater expenses in fiscal 2020 than in 2019 as we continue to advance our RSV, NASH, HBV, hMPV, and SARS CoV-2, programs. However if the COVID-19 pandemic slows down our development programs, it will reduce our spending in those areas in the near term.

We are funding our operations primarily through payments received under our collaboration agreement with AbbVie. and, to the extent necessary, our existing cash, cash equivalents, and short-term and long-term marketable securities. Our revenue ~~in the near term will continue to be~~is currently dependent on royalty payments we receive from AbbVie on its sales of MAVYRET/MAVIRET. AbbVie has guided that it expects its calendar 2020 HCV sales will be approximately $2.3 billion.

Given the uncertainty regarding the level of AbbVie’s future MAVYRET/MAVIRET sales that will generate our royalty ~~payments from~~revenue, the development risks affecting the extent and timing of our ~~collaboration with AbbVie.~~

~~For its new MAVYRET/MAVIRET regimen, which in~~future expenditures for the ~~majority~~advancement of ~~chronic HCV patients only requires 8 weeks of treatment compared to 12 weeks with VIEKIRA PAK, AbbVie has initially set a lower list price compared to its original HCV regimens~~our internally developed compounds and

other HCV products on the market. As MAVYRET/MAVIRET replaces AbbVie’s paritaprevir-containing regimens over the next several quarters, AbbVie is seeking to increase its HCV market share through this pricing and the favorable treatment characteristics any further impact of the ~~new regimen. It~~ongoing COVID-19 pandemic, it is ~~still too early to know how successful AbbVie’s efforts~~uncertain whether our revenues will ~~be.~~exceed our expenses in future quarters.

Royalty Revenue

~~Since~~Our revenue consists of royalties received under our inception, our revenue has been derived from two primary sources: collaboration agreements with pharmaceutical companies and one government research and development contract. We have entered into three significant collaboration agreements and contracts since 2006, the most significant of which is our continuing collaboration agreement with ~~AbbVie.~~

Beginning in our fiscal year ended September 30, 2015, we have generated royalty revenue from AbbVie’s net sales allocable to our protease inhibitors, including paritaprevir, which is part of AbbVie’s initial treatment regimens for HCV approved in the U.S. in December 2014 and in the EU and dozens of other countries since then. During the quarter ended September 30, 2017, AbbVie, received approvals of its new HCV regimen containing glecaprevir in the U.S. and EU and began commercializing the combination under the tradenames MAVYRET™ in the U.S. and MAVIRET™ outside the U.S.

~~The following table is a summary of revenue recognized from our collaboration agreement for the three months ended December 31, 2017 and 2016:~~

Three Months Ended

December 31,

2017

2016

(in thousands)

AbbVie agreement:

Royalties
$
23,109

$
10,417

Milestones

15,000

—

Total revenue
$
38,109

$
10,417

~~AbbVie Agreement~~

~~Since~~substantially all of ~~our research obligations under the AbbVie agreement were concluded by June 30, 2011, all milestone payments received since then have been recognized as revenue upon achievement~~which are now derived from sales of each milestone by AbbVie. During the three months ended December 31, 2017, we earned and recognized as revenue the last milestone payment for glecaprevir, which was a $15.0 million milestone payment upon AbbVie’s achievement of commercialization regulatory approval of MAVIRET~~™ in~~ ~~Japan. We did not earn any milestones during the same period in 2016.~~

~~We also receive annually tiered, double-digit royalties per protease inhibitor product on AbbVie’s net sales allocable to either of our collaboration’s protease inhibitors.~~MAVYRET/MAVIRET. Under the terms of our AbbVie agreement, ~~as amended in October 2014,~~we earn annually tiered, double-digit royalties on the 50% of AbbVie’s net sales of MAVYRET/MAVIRET ~~are~~ allocated to glecaprevir. In the case of regimens containing paritaprevir, 30% of net sales of 3-DAA regimens containing paritaprevir and 45% of net sales of 2-DAA regimens containing paritaprevir are allocated to paritaprevir for purposes of calculating our annually tiered royalties. Beginning with each January 1, the cumulative net sales of each royalty-bearing product start at zero for purposes of calculating the tiered royalties on a product-by-product basis.

We expect all of our revenue in fiscal 2020 to be generated from royalties received under our collaboration agreement with AbbVie. There are no further milestones expected to be earned under the agreement.

Internal Programs

As our internal product candidates are currently in ~~preclinical~~Phase 1 or ~~early~~Phase 2 clinical development, we have not generated any revenue from our own product sales and do not expect to generate any revenue from product sales derived from these product candidates for at least the next several years. We expect that our revenue for 2018 and the next several years will be derived from royalties under our current collaboration agreement with AbbVie, as well as any additional collaboration that we may enter into in the future.

Operating Expenses

The following table summarizes our operating expenses for the three and six months ended ~~December~~March 31, ~~2017~~2020 and ~~2016:~~2019:

	Three Months Ended				Three Months Ended				Six Months Ended
	December 31,				March 31,				March 31,
	2017		2016		2020		2019		2020		2019
	(in thousands)				(in thousands)
Research and development	$	17,962	$	12,526	$	32,610	$	34,155	$	65,388	$	69,033
General and administrative		5,770		4,937		6,884		6,780		13,805		13,932
Total operating expenses	$	23,732	$	17,463	$	39,494	$	40,935	$	79,193	$	82,965

Research and Development Expenses

Research and development expenses consist of costs incurred to conduct basic research, such as the discovery and development of novel small molecules as therapeutics, as well as any external expenses of preclinical and clinical development activities. We expense all costs of research and development as incurred. These expenses consist primarily of:

~~personnel costs, including salaries, related benefits and stock-based compensation for employees engaged in scientific research and development functions;~~

•

personnel costs, including salaries, related benefits and stock-based compensation for employees engaged in scientific research and development functions;

~~third-party contract costs relating to research, formulation, manufacturing, preclinical study and clinical trial activities;~~

•

third-party contract costs relating to research, formulation, manufacturing, preclinical study and clinical trial activities;

~~third-party license fees;~~

•

laboratory consumables;

~~laboratory consumables; and~~

•

allocated facility-related costs; and

~~allocated facility-related costs.~~

•

third-party license fees.

Project-specific expenses reflect costs directly attributable to our clinical development candidates and preclinical candidates nominated and selected for further development. Remaining research and development expenses are reflected in research and drug discovery, which represents early-stage drug discovery programs. At any given time, we typically have several active early stage research and drug discovery projects. Our internal resources, employees and infrastructure are not directly tied to any individual research or drug discovery project and are typically deployed across multiple projects. As such, we do not report information regarding costs incurred for our early-stage research and drug discovery programs on a project-specific basis. We expect that our research and development expenses will continue to increase in the future as we advance our ~~NASH, PBC, RSV~~research and ~~HBV~~development programs.

Our research and drug discovery programs are at early stages; therefore, the successful development of our product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. Given the uncertainty associated with clinical trial enrollments, and the risks inherent in the development process, we are unable to determine the duration and completion costs of the current or future clinical trials of our product candidates or if, or to what extent, we will generate revenue from the commercialization and sale of any of our product candidates. We anticipate that we will make determinations as to which development programs to pursue and how much funding to direct to each program on an ongoing basis in response to the preclinical and clinical success and prospects of each product candidate, as well as ongoing assessments of the commercial potential of each product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs, which include salaries, related benefits and stock-based compensation, of our executive, finance, business and corporate development and other administrative functions. General and administrative expenses also include travel expenses, allocated facility-related costs not otherwise included in research and development expenses, directors and officers liability insurance premiums, and professional fees for auditing, tax, and legal services and patent expenses.

We expect that general and administrative expenses will increase in the future primarily due to the ongoing expansion of our operating activities in support of our own research and development programs, as well as potential additional costs associated with operating a growing ~~public~~publicly traded company.

Other Income (Expense), Net

Other income (expense), net consists of interest income, interest expense and the change in fair value of our outstanding Series 1 nonconvertible preferred ~~stock and the change in fair value of our outstanding warrant liability in 2017.~~stock. Interest income consists of interest earned on our cash equivalents and short-term and long-term marketable securities balances as well as interest earned for any refunds received from tax authorities. ~~Interest expense consists of interest expense related to our capital lease obligation~~. The change in fair value of our outstanding warrant liability and Series 1 nonconvertible preferred stock relates to the remeasurement of these financial instruments from period to period as these instruments ~~may require a transfer of assets because of the liquidation preference features of the underlying stock. The change in fair value also includes any forfeiture of unexercised warrants~~ ~~which expired on October 4, 2017.~~

Income Tax (Expense) Benefit

Income tax (expense) benefit is based on our best estimate of applicable income tax rates, net research and development tax credits and deferred income taxes, for the entire fiscal year applied to pre-tax profit or loss reported for the year-to-date period, except when a reliable estimate of the annual effective tax rate cannot be made and we instead use the year-to-date effective tax rate.

Results of Operations

Comparison of Three Months Ended March 31, 2020 and 2019

	Three Months Ended
	March 31,
	2020		2019
	(in thousands)
Royalty revenue	$	27,619	$	39,631
Research and development		32,610		34,155
General and administrative		6,884		6,780
Other income (expense), net		1,950		2,245
Income tax benefit		3,920		3,204

Royalty Revenue

Our revenue consists of royalties received under our collaboration agreement with AbbVie, substantially all of which are now derived from sales of MAVYRET/MAVIRET. We are entitled to annually tiered, double-digit, per-product royalties on 50% of all net sales of MAVYRET/MAVIRET. Our royalty revenues eligible to be earned in the future will potentially fluctuate depending on AbbVie’s HCV market share, the pricing of the MAVYRET/MAVIRET regimen and the number of patients treated with that regimen. Beginning with each January 1, the cumulative net sales of each royalty-bearing product start at zero for purposes of calculating the tiered royalties on a product-by-product basis.

We recognized royalty revenue of $27.6 million during the three months ended March 31, 2020 as compared to $39.6 million during the three months ended March 31, 2019. In May 2020, AbbVie reported that the decrease in its calendar 2020 HCV sales was due to lower patient volumes in select international markets where patients are treated in hospitals affected by COVID-19, as well as increased competition affecting pricing and market share within the U.S. Managed Medicaid segment. In light of these factors, AbbVie has guided that it expects its calendar 2020 HCV sales will be approximately $2.3 billion.

Research and development expenses

	Three Months Ended
	March 31,
	2020		2019
	(in thousands)
R&D programs:
Virology	$	19,644	$	17,062
Liver disease (non-viral)		12,650		17,063
Other		316		30
Total research and development expenses	$	32,610	$	34,155

Research and development expenses decreased by $1.6 million for the three months ended March 31, 2020 as compared to the same period in 2019. The decrease in expenses in our liver disease program was due to timing of clinical studies. In 2019, we continued with enrollment in our ARGON-1 and INTREPID studies in our liver disease programs and in fiscal 2020 we substantially completed our ARGON-1 study expenses and were ready to initiate a Phase 2b study (ARGON-2) in March 2020. However, we paused recruitment and dosing of ARGON-2 due to the COVID-19 pandemic. The increase in expenses in our virology program was primarily due to the progression of clinical activities in our HBV program, including initiation of the Phase 1a/1b clinical study of EDP-514. Compensation expense also increased as we continued to advance our wholly owned programs in 2020. In the near term, our clinical trial expenses could fluctuate if the impact of the COVID-19 pandemic prolongs the re-initiation of our ARGON-2 study or our EDP-514 Phase 1b study in nuc-suppressed HBV patients. Furthermore, COVID-19 could also impact recruitment rates in those studies or cause delays in our other studies we plan to initiate later in 2020. In the coming years, we expect our research and development expenses to increase as our wholly owned programs advance, subject to any long-term impact of the COVID-19 pandemic.

General and administrative expenses

General and administrative expenses remained relatively flat quarter over quarter.

Other income (expense), net

Other income (expense), net, decreased $0.3 million for the three months ended March 31, 2020 as compared to the same period in 2019 due to a net decrease in investment income.

Income tax benefit

For the three months ended March 31, 2020 and 2019, we recorded an income tax benefit of $3.9 million and an income tax benefit of $3.2 million, respectively. The income tax benefit for the three months ended March 31, 2020 was driven primarily by our pre-tax loss, research and development tax credits and release of an uncertain tax liability during the quarter. The income tax benefit for the three months ended March 31, 2019 was driven by tax deductions for employee stock award-related activity during the prior year comparable period, despite reporting pre-tax income for the period.

Comparison of the Six Months Ended March 31, 2020 and 2019

	Six Months Ended
	March 31,
	2020		2019
	(in thousands)
Revenue	$	80,189	$	109,517
Research and development		65,388		69,033
General and administrative		13,805		13,932
Other income (expense), net		4,026		4,130
Income tax (expense)		2,416		(526	)

Royalty Revenue

We recognized revenue of $80.2 million during the six months ended March 31, 2020 as compared to $109.5 million during the same period in 2019. The decrease in royalty revenue of $29.3 million was driven by lower HCV sales as reported by AbbVie due to increased competition and lower treated patient volumes.

Research and development expenses

	Six Months Ended
	March 31,
	2020		2019
	(in thousands)
R&D programs:
Virology	$	38,879	$	33,194
Liver disease (non-viral)		26,083		35,717
Other		426		122
Total research and development expenses	$	65,388	$	69,033

Research and development expenses decreased by $3.6 million for the six months ended March 31, 2020 as compared to the same period in 2019. The decrease in expenses in our liver disease program was due to timing of clinical studies. In 2019, we continued with enrollment in our ARGON-1 and INTREPID studies in our liver disease programs and in fiscal 2020, we substantially completed our ARGON-1 study expenses and were ready to initiate a Phase 2b study (ARGON-2) in March 2020. However, we paused recruitment and dosing of ARGON-2 due to the COVID-19 pandemic. The increase in expenses in our virology program was primarily due to the progression of clinical activities in our HBV program, including initiation of the Phase 1a/1b clinical study of EDP-514. Compensation expense also increased as we continued to advance our wholly owned programs in 2020.

General and administrative expenses

General and administrative expenses remained relatively flat year over year.

Other income (expense), net

Other income (expense), net, remained relatively flat year over year.

Income tax (expense) benefit

For the six months ended March 31, 2020 and 2019 we recorded an income tax benefit of $2.4 million and income tax (expense) of $(0.5) million, respectively. Although we reported pre-tax income for the six months ended March 31, 2020, we recognized an income tax benefit due to federal research and development tax credits, release of an uncertain tax liability and stock award-related activity during the year. Income tax expense for the six months ended March 31, 2019 was driven primarily by our pre-tax income for the prior year comparable period and offset by federal research and development tax credits and tax deductions for employee stock award-related activity.

Liquidity and Capital Resources

At March 31, 2020, our principal sources of liquidity were cash, cash equivalents and short-term and long-term marketable securities totaling $435.4 million. We believe, despite the ongoing global impact of COVID-19, that our principal sources of liquidity will be sufficient to meet our anticipated cash requirements for the foreseeable future.

The following table shows a summary of our cash flows for the six months ended March 31, 2020 and 2019:

	Six Months Ended
	March 31,
	2020			2019
	(in thousands)
Cash provided by (used in):
Operating activities	$	27,037		$	60,340
Investing activities		(9,453	)		(19,609	)
Financing activities		5,524			1,397
Net increase in cash, cash equivalents and restricted cash	$	23,108		$	42,128

Net cash provided by operating activities

The decrease in cash provided by operating activities of $33.3 million for the six months ended March 31, 2020 as compared to the same period in 2019 was primarily driven by a decrease in net income year-over-year and net cash used by changes in our operating assets and liabilities of $11.7 million in the six months ended March 31, 2020 as compared to net cash used by changes in our operating assets and liabilities of $21.1 million for the same period in 2019. Changes in our operating assets and liabilities in both periods were generally due to payments received under our collaboration with AbbVie, the advancement of our research programs and the timing of vendor invoicing and payments.

Net cash used in investing activities

The increase in cash used in investing activities of $10.2 million for the six months ended March 31, 2020 as compared to the same period in 2019 was driven by the timing of purchases, sales and maturities of marketable securities.

Net cash provided by financing activities

The increase in net cash provided for the six months ended March 31, 2020 as compared to the same period in 2019 was driven by an increase in proceeds from exercises of stock options of $1.4 million as well as a decrease in withholding tax payments for the settlement of share-based awards of $2.7 million driven by a decline in our stock price year over year at the time of vesting of certain share-based awards.

Funding requirements

As of March 31, 2020, we had $435.4 million in cash, cash equivalents and short-term and long-term marketable securities. We believe that our existing cash, cash equivalents and marketable securities as of March 31, 2020 will be sufficient to meet our anticipated cash requirements for the foreseeable future. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

Our future capital requirements are difficult to forecast and will depend on many factors, including:

•

the amount of royalties generated from our existing collaboration with AbbVie;

•

the number and characteristics of our research and development programs;

•

the scope, progress, results and costs of researching and developing any of our product candidates on our own, including conducting advanced clinical trials;

•

delays in our clinical trials of our product candidates as a result of the COVID-19 pandemic;

•

the cost of manufacturing our product candidates for clinical development and any products we successfully commercialize independently;

•

opportunities to in-license or otherwise acquire new technologies, therapeutic candidates and therapies;

•

the timing of, and the costs involved in, obtaining regulatory approvals for any product candidates we develop independently;

•

the cost of commercialization activities, if any, of any product candidates we develop independently that are approved for sale, including marketing, sales and distribution costs;

•

the timing and amount of any sales of our product candidates, if any, or royalties thereon;

•

our ability to establish new collaborations, licensing or other arrangements, if any, and the financial terms of such arrangements;

•

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including any litigation costs and the outcomes of any such litigation; and

•

potential fluctuations in foreign currency exchange rates.

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financing activities. We do not have any interest in entities referred to as variable interest entities, which include special purpose entities and other structured finance entities.

Contractual Obligations and Commitments

In our 2019 Form 10-K Part II, Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations, under the heading “Contractual Obligations and Commitments”, we have described our commitments and contingencies. There were no material changes to our total contractual commitments and obligations during the six months ended March 31, 2020.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that the estimates and assumptions involved in the accounting policies described below may have the greatest potential impact on our consolidated financial statements and, therefore, consider these to be our critical accounting policies. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. See ~~also~~ our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017~~2019 (referred to as our ~~2017~~2019 Form 10-K) for information about ~~these~~critical accounting policies as well as a description of our other significant accounting ~~policies. We believe that~~policies.

Other than the impact of ~~our significant accounting policies, the following accounting policies involve the most judgment and complexity:~~

~~Revenue recognition;~~

~~Income taxes; and~~

~~Stock-based compensation~~

Accordingly, we believe the policies set forth above are critical to fully understanding and evaluating our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected.

~~There have been no material changes in our critical accounting policies since September 30, 2017 aside from~~ the adoption of ~~ASU 2016-09~~ASC 842 in the first quarter of fiscal ~~2018.~~2020, as disclosed in Note 2 to our unaudited financial statements included in this Quarterly Report on Form 10-Q, there have been no material changes to our significant accounting policies since September 30, 2019. For further information, please see the discussion of critical accounting policies included in our ~~2017~~2019 Form 10-K.

~~Results of Operations~~

~~Comparison of Three Months Ended December 31, 2017 and 2016~~

Three Months Ended

December 31,

2017

2016

(in thousands)

Revenue

$
38,109

$
10,417

Research and development

17,962

12,526

General and administrative

5,770

4,937

Other income (expense), net:

960

524

Income tax (expense) benefit

(3,644
)

1,542

~~Revenue~~

Three Months Ended

December 31,

2017

2016

(in thousands)

AbbVie agreement:

Royalties

$
23,109

$
10,417

Milestones

15,000

—

Total revenue

$
38,109

$
10,417

We recognized revenue of $38.1 million during the three months ended December 31, 2017 as compared to $10.4 million during the three months ended December 31, 2016. During the three months ended December 31, 2017, revenue consisted of a $15.0 million milestone earned upon AbbVie’s achievement of commercialization regulatory approval of MAVIRET~~™ in~~ Japan, as well as royalties earned on the portion of AbbVie’s net sales of its HCV treatment regimens allocable to glecaprevir or paritaprevir. During the three months ended December 31, 2016, our revenue consisted of royalties earned on the portion of AbbVie’s net sales of its HCV treatment regimens allocable to paritaprevir.

~~Our revenue is generated through our collaboration with AbbVie. Our collaboration’s~~ ~~new MAVYRET/MAVIRET regimen~~, a pan-genotypic treatment combining two DAAs, began commercialization in the third calendar quarter of 2017, following its approval in the EU and the U.S. We are entitled to annually tiered, double-digit, per-product royalties on 50% of all net sales of MAVYRET/MAVIRET. Our royalty revenues eligible to be earned in the future will potentially fluctuate depending on AbbVie’s HCV market share, the pricing of the MAVYRET/MAVIRET regimen and number of patients treated.

~~Research and development expenses~~

Three Months Ended

December 31,

2017

2016

(in thousands)

R&D programs:

Liver disease

$
10,710

$
5,912

Virology

7,222

6,524

Other

30

90

Total research and development expenses

$
17,962

$
12,526

Research and development expenses increased $5.4 million for the three months ended December 31, 2017 as compared to the same period in 2016. The increase was primarily due to progression of preclinical and clinical activities in our liver disease and virology programs. ~~Increases were driven by an increase in headcount to support our preclinical activities and an increase in external costs for clinical and preclinical activities.~~

~~General and administrative expenses~~

General and administrative expenses increased by $0.8 million for the three months ended December 31, 2017 as compared to the same period in 2016. The increase was primarily due to an increase in compensation expense due to increased headcount.

~~Other income (expense), net~~

Other income (expense), net, increased $0.4 million for the three months ended December 31, 2017 as compared to the same period in 2016 due to an increase in interest income due to higher average investment balances and changes in interest rates for the period ended December 31, 2017 as compared to the same period in 2016. In addition, we recognized an increase to other income (expense), net, of less than $0.1 million as a result of the expiration of unexercised warrants during the three months ended December 31, 2017.

~~Income tax (expense) benefit~~

~~For the three months ended December 31, 2017 and 2016, we recorded an income tax (expense) benefit of $(3.6) million and $1.5 million, respectively.~~ During the three months ended December 31, 2017, our income tax expense included a revaluation adjustment against deferred tax assets of $(3.8) million due to a decrease in the federal corporate income tax rate as enacted under the U.S. Tax

Cuts and Jobs Act (the “Tax Act”). We also recorded an income tax benefit of $0.2 million primarily related to tax deductions for stock option activity which is now recorded in income tax expense (benefit) due to the adoption of ASU 2016-09 during the first quarter of fiscal 2018. ~~For the three months ended December 31, 2016,~~ we recorded an income tax benefit due to the Company’s loss before income taxes for the quarter as well as federal research and development tax credits which reduced taxes payable and were reflected in the Company’s annual effective tax rate.

~~Estimates used to prepare our~~ ~~income tax expense during the three months ended December 31 2017 are based on our initial analysis of the~~ ~~Tax Act. Given the complexity of the Tax Act, anticipated guidance from the U.S.~~ ~~Treasury~~ ~~regarding implementation of the act, and potential for guidance from the~~ ~~Securities and Exchange Commission~~ ~~or the~~ ~~Financial Accounting Standards Board~~ ~~related to the act, these estimates may be adjusted during our fiscal 2018 to reflect any such guidance provided.~~

~~Liquidity and Capital Resources~~

~~At December 31, 2017, our principal sources of liquidity were cash, cash equivalents and short-term and long-term marketable securities totaling $297.5 million.~~

~~From our inception through December 31, 2017,~~ we have financed our operations primarily through payments under our collaborations, government research and development contracts and grants, and the net proceeds from our initial public offering of our equity in March 2013. ~~The following table shows a summary of our cash flows for the three months ended December 31, 2017 and 2016:~~

December 31,

2017

2016

(in thousands)

Cash provided by (used in):

Operating activities

$
4,409

$
3,145

Investing activities

$
(2,448
)

$
865

Financing activities

$
417

$
31

Net increase in cash and cash equivalents

$
2,378

$
4,041

~~Net cash provided by operating activities~~

The increase in cash provided by operating activities of $1.3 million for the three months ended December 31, 2017 as compared to the same period in 2016 is driven primarily by timing of payments received under our collaboration with AbbVie year over year, which were substantially offset by increased expenditures in research and development in order ~~to progress clinical development and preclinical research in our proprietary programs~~. We received $25.6 million during the three months ended December 31, 2017 from AbbVie, including royalties and a $15.0 million milestone payment, compared to $12.8 million in cash during three months ended December 31, 2016 which consisted exclusively of royalties. In addition, our cash taxes paid decreased by $1.0 million due to timing of estimated tax payments.

~~Net cash provided by (used in) investing activities~~

The decrease in cash provided by investing activities of $3.3 million for the three months ended December 31, 2017 as compared to the same period in 2016 was driven by the timing of purchases, sales and maturities of marketable securities.

~~Net cash provided by financing activities~~

The increase in net cash provided by financing activities of $0.4 million for the three months ended December 31, 2017 as compared to the same period in 2016 was driven by an increase in exercises of stock options during the three months ended December 31, 2017 as compared to the same period in 2016.

~~Funding requirements~~

As of December 31, 2017, we had $297.5 million in cash, cash equivalents and short-term and long-term marketable securities. We believe that our existing cash, cash equivalents and marketable securities as of December 31, 2017 will be sufficient to meet our anticipated cash requirements for the foreseeable future. However, our forecast of the period of time through which our financial

~~resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.~~

~~Our future capital requirements are difficult to forecast and will depend on many factors, including:~~

~~whether our existing collaboration continues to generate substantial royalties to us;~~

~~the number and characteristics of the future product candidates we pursue;~~

~~the scope, progress, results and costs of researching and developing any of our product candidates on our own, including conducting preclinical research and clinical trials;~~

~~opportunities to in-license or otherwise acquire new technologies, therapeutic candidates and therapies;~~

~~the timing and amount of royalties on glecaprevir and paritaprevir and any sales of our product candidates, if any, or royalties thereon;~~

~~the timing of, and the costs involved in, obtaining regulatory approvals for any product candidates we develop independently;~~

~~the cost of commercialization activities, if any, of any product candidates we develop independently that are approved for sale, including marketing, sales and distribution costs;~~

~~the cost of manufacturing our product candidates and any products we successfully commercialize independently,~~ ~~including manufacturing for clinical development~~;

~~our ability to maintain our existing collaboration and to establish new collaborations, licensing or other arrangements and the financial terms of such agreements; and~~

t~~he costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including any litigation costs and the outcomes of any such litigation.~~

~~Off-Balance Sheet Arrangements~~

~~Contractual Obligations and Commitments~~

In our 2017 Form 10-K Part II, Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations, under the heading “Contractual Obligations and Commitments”, we have described our commitments and contingencies. There were no material changes in our commitments and contingencies during the three months ended December 31, 2017.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is set forth in Note 2 to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Sensitivity

We had cash, cash equivalents and short-term and long-term marketable securities of ~~$297.5~~$435.4 million at ~~December~~March 31, ~~2017~~2020 consisting of cash, money market funds, agency securities, commercial paper, treasury notes and corporate ~~bonds and government securities.~~bonds. Interest income is sensitive to changes in the general level of interest rates; however, due to the nature of these investments, a 1% change in market interest rates of 100 basis points would not be expected to have a material impact on our financial condition or results of operations. ~~Other than our capital lease obligation, we had no debt outstanding as of December 31, 2017.~~

ITEM 4.

CONTROLS AND PROCEDURES

a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.

Our management, with the participation of the principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under

the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on this evaluation, the principal executive officer and principal financial officer concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods.

b) Changes in Internal Control Over Financial Reporting.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control performed during the ~~last fiscal quarter~~three months ended March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II —~~OTHER~~—OTHER INFORMATION

ITEM 1A.RISK FACTORS

RISK FACTORS

Our business faces significant risks and uncertainties, any of which, alone or in combination with others, may have a material adverse effect on our business prospects, financial condition and results of operations. Accordingly, in evaluating our business, we encourage you to consider the following summary of the risk factors and uncertainties that we believe are most relevant to our business. You should carefully consider the risks described below before making an investment decision and understand that it is not possible to predict or identify all such factors. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations. In addition, we operate in a competitive and rapidly changing environment. New factors emerge from time to time and it is not possible to predict the impact of all of these factors on our business, financial condition or results of operations. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise.

The statement of risk factors provided in this Item 1A includes any material changes to and supersedes the statement of risk factors associated with our business previously disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017~~2019 filed on ~~December 11, 2017~~November 27, 2019 with the Securities and Exchange Commission (SEC). In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Form 10-Q and our other filings made from time to time with the SEC.

Risks Related to Our Business

Our financial prospects for the next several years are dependent upon ~~the development and commercialization efforts of AbbVie for combination therapies incorporating~~AbbVie’s success selling MAVYRET/MAVIRET, which includes our protease ~~inhibitors paritaprevir or~~inhibitor, glecaprevir, for the treatment of HCV. AbbVie may act in its best interest rather than in our best interest, which could adversely affect our business.

We rely on AbbVie to fund and conduct the ~~clinical development and~~ commercialization of ~~regimens~~its regimen containing ~~paritaprevir or~~ glecaprevir (our second protease inhibitor, which is one of the two DAAs in AbbVie’s MAVYRET/MAVIRET treatment), over which we have granted AbbVie complete control. Our ability to continue to generate ~~significant~~ revenue ~~in the near term~~ will depend primarily on the success of AbbVie’s ~~continued~~ efforts to ~~commercialize its paritaprevir-containing regimens in markets worldwide, as well as the successful marketing launch and commercialization by AbbVie~~maintain sales of MAVYRET/MAVIRET. Such ~~successes are~~success is subject to ~~significant~~ uncertainty, and we have no control over the resources, time and effort that AbbVie may devote to ~~its regimens containing paritaprevir or glecaprevir.~~sales of this regimen. Any of several events or factors could have a material adverse effect on our ability to continue to generate revenue from AbbVie’s ~~commercialization~~sales of ~~paritaprevir or glecaprevir in combination therapies.~~MAVYRET/MAVIRET. For example, AbbVie:

may not achieve satisfactory levels of market acceptance and reimbursement by physicians, patients and third-party payers for the MAVYRET/MAVIRET regimen in the various markets of the world where it is being introduced and sold by AbbVie;

~~may not compete successfully with its MAVYRET/MAVIRET regimen against other products and therapies for HCV~~;

~~may experience different competitive challenges and market opportunity for its paritaprevir-containing regimens as it begins to commercialize its MAVYRET/MAVIRET HCV regimen containing glecaprevir~~;

~~may have to comply with additional requests and recommendations from the FDA, including label restrictions for its regimens containing paritaprevir or glecaprevir~~;

~~may not make all regulatory filings and obtain all necessary approvals from foreign regulatory agencies and all commercially necessary reimbursement approvals~~;

~~may not commit sufficient resources to the marketing and distribution of MAVYRET/MAVIRET, whether for competitive or strategic reasons or otherwise due to a change in business priorities~~;

~~may cease to perform its obligations under the terms of our collaboration agreement;~~

~~may unilaterally terminate our collaboration agreement on specified prior notice without any reason and without any further commitment; and~~

•

may experience lower sales volume in future quarters due to a reduction in diagnoses and treatment of HCV during shutdowns as a result of the COVID-19 pandemic;

•

may not maintain satisfactory levels of prescriptions by physicians and reimbursement by third-party payors for the MAVYRET/MAVIRET regimen in the various markets of the world where it is being sold;

•

may not compete successfully with its MAVYRET/MAVIRET regimen against other products and therapies for HCV, including competition for exclusive arrangements with third-party payors and governmental entities as well as price competition;

•

may have to comply with additional requests and recommendations from the FDA, including label restrictions for its regimen containing glecaprevir;

•

may not make all regulatory filings and obtain all necessary approvals from foreign regulatory agencies and all commercially necessary reimbursement approvals;

•

may not commit sufficient resources to the marketing and distribution of MAVYRET/MAVIRET, whether for competitive or strategic reasons or otherwise due to a change in business priorities;

•

may cease to perform its obligations under the terms of our collaboration agreement;

•

may unilaterally terminate our collaboration agreement on specified prior notice without any reason and without any further commitment; and

•

may not be able to manufacture ~~paritaprevir or~~ glecaprevir in compliance with requirements of the FDA and similar foreign regulatory agencies and in commercial quantities sufficient to meet market ~~demand~~demand.

We do not have access to all information regarding the HCV regimens being commercialized by AbbVie, including certain information about spontaneous safety reports for any marketed product, regulatory affairs, process development, manufacturing, marketing, sales and other areas known by AbbVie. Thus, our ability to keep our stockholders informed about the status of products licensed under our collaboration is limited by the degree to which AbbVie keeps us informed. If AbbVie does not perform in the manner we expect or fulfill its responsibilities in a timely manner, or at all, the global commercialization of MAVYRET/MAVIRET could be delayed or terminated in selected jurisdictions or be commercially unsuccessful. In addition, AbbVie has the right to make decisions regarding the ~~development and~~ commercialization of licensed products without consulting ~~us, and~~us. AbbVie may also make decisions with which we do not agree. If AbbVie acts in a manner that is not in our best interest, then it could adversely affect our business and prospects.

Our royalty revenues are primarily derived from AbbVie’s net sales of ~~regimens to treat~~its MAVYRET/MAVIRET regimen for HCV. If AbbVie is unable to ~~increase and~~ maintain sales of ~~these regimens~~this regimen at or above current levels of sales, our royalty revenues ~~and results of operations~~ would be adversely affected.

~~Our quarterly royalty revenue from~~ AbbVie’s ~~net sales of~~MAVYRET/MAVIRET regimen continues to be the leading HCV treatment ~~regimens containing paritaprevir has declined since those sales peaked~~ in the ~~first quarter of our fiscal 2016. AbbVie has priced the MAVYRET/MAVIRET regimen well below the pricing of its first HCV regimens,~~U.S. and ~~below that of its principal competitor, which means AbbVie will need to capture significant increases~~several market geographies in ~~market share to maintain or increase its HCV net sales and our royalty revenues.~~developed countries where it is approved. While commercialization of ~~these regimens~~this regimen is exclusively in AbbVie’s control without any required input from us, we believe it is possible that prices will decline further due to ~~payers~~payors obtaining additional discounts or competitive market ~~dynamics~~dynamics. For example, the states of Louisiana and Washington have each announced efforts to negotiate a blanket price for one of the HCV drug companies to treat all patients in one or more state programs (e.g. Medicaid). Gilead was awarded the contract in Louisiana and AbbVie was awarded the contract in Washington. In addition, Gilead has been able to access the Medicaid market at a lower price point to build its market share by using an authorized generic version of its branded HCV regimen. It is unknown whether these programs or other programs that ~~there~~states may adopt could have any further impact on MAVYRET/MAVIRET sales. There may also be ~~fluctuation~~fluctuations in AbbVie’s market share over time due to these and other competitive actions by ~~its principal competitor,~~ Gilead. ~~We also note Gilead has reported a decline year over year across most major geographic markets in the number of new patients starting on DAA treatments for HCV.~~

In addition, in light of continued fiscal crises experienced by several countries in the European Union and Japan, governments have announced or implemented measures to manage and reduce healthcare expenditures. AbbVie may experience global pricing pressure for its HCV regimens from such measures, which may be reflected in larger discounts or rebates on its regimens or delayed reimbursement. Also, private and public ~~payers~~payors may choose to exclude AbbVie’s ~~regimens~~MAVYRET/MAVIRET regimen from their formulary coverage lists or limit the types of patients for whom coverage will be provided. Any such change in formulary coverage, discounts or rebates or reimbursement for ~~AbbVie’s HCV regimens~~MAVYRET/MAVIRET would negatively affect the demand for ~~such regimens~~this regimen and our royalty ~~revenues~~revenue derived from ~~them.~~its sales.

Furthermore, we expect that the COVID-19 pandemic will adversely affect AbbVie’s sales of MAVYRET/MAVIRET in the United States and the rest of the world as health care systems experience varying levels of shut-down. At this point in time we do not know the extent and duration of this adverse effect. We note, however, that the HCV patient pool will continue to carry the viral infection until treated.

We and AbbVie face substantial competition in the markets for HCV drugs, and there are many companies developing potential therapies for NASH, ~~PBC,~~RSV and HBV, ~~and RSV,~~ as well as other liver diseases and viral infections, which may result in others discovering, developing or commercializing products before we do or doing so more successfully than we do.

The pharmaceutical and biotechnology industries are intensely competitive and rapidly changing. Many large pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations are commercializing or pursuing the development of products that target HCV, NASH, ~~PBC,~~RSV, HBV ~~RSV~~ and other viral infections or liver diseases that we may target in the future.

Many of our competitors have substantially greater commercial infrastructure and greater financial, technical and personnel resources than we have, as well as drug candidates in late-stage clinical development.

In all the disease areas currently under the focus of our research and development efforts, there are other companies with ~~more~~ product candidates that are more advanced than ours. Our competitors may succeed in developing these product candidates or others and obtaining regulatory approval before we can do so with any of our product candidates. If we are not “first to market” with one of our product candidates in one or more of these disease indications, our competitive position could be compromised because it may be more difficult for us to obtain marketing approval for that product candidate and market acceptance of that product candidate as a follow-on competitor. In addition, any new product that competes with an approved product typically must demonstrate compelling advantages in efficacy, convenience, tolerability or safety, or some combination of these factors, in order to gain regulatory approvals, overcome price competition and be commercially successful.

We expect AbbVie’s ~~HCV treatment regimens containing any of our licensed protease inhibitors~~MAVYRET/MAVIRET to continue to face intense competition due to existing approved products in the HCV market. AbbVie’s HCV treatment regimens currently face competition in various world markets and subpopulations of HCV from Gilead’s ~~Sovaldi~~Epclusa^® ~~(sofosbuvir), Harvoni~~^® ~~(a fixed-dose combination of sofosbuvir and ledipasvirm), Epclusa~~^® (a fixed dose combination of sofosbuvir and velpatasvir) ~~and~~, Vosevi™ (a triple combination therapy of sofosbuvir, velpatasvir and voxilaprevir approved by the FDA in July 2017 for specified sofosbuvir -treatment failures and NS5A-inhibitor treatment failures) and Harvoni^® (a fixed-dose combination of sofosbuvir and ledipasvir); and to a lesser extent - Merck’s Zepatier^® (a fixed-dose combination of grazoprevir and elbasvir);. Gilead launched authorized generic versions of Epclusa and Harvoni in January 2019 through a newly created subsidiary, Asegua Therapeutics, LLC, which has had an impact on the competitive landscape. For example, in March 2019, the state of Louisiana announced the selection of Asegua Therapeutics as their HCV subscription model

~~Bristol-Myers Squibb’s Daklinza™ (daclatasvir) and daclatasvir in combination~~pharmaceutical partner to provide the state with ~~asunaprevir; and Johnson & Johnson’s Olysio~~^® ~~(simeprevir). Competitive~~unrestricted access to its direct-acting antiviral medication. Other competitive products in the form of other treatment methods or a vaccine for HCV may render AbbVie’s HCV regimens obsolete or noncompetitive. AbbVie’s regimens that contain one of our collaboration’s protease inhibitors will face competition based on their safety and effectiveness, reimbursement coverage, price, patent position, AbbVie’s marketing and sales capabilities, and other factors. If any of AbbVie’s HCV regimens face competition from generic products other than authorized generic versions by the manufacturer of the branded product (i.e. Gilead and Asegua Therapeutics), the collaboration agreement provides that the royalty rate applicable to our protease product contained in the regimen is reduced significantly by a specified percentage on a product-by-product, country-by-country basis. If AbbVie is not able to compete effectively against its competitors in HCV, our business will not grow and our financial condition, operations and stock price will suffer.

We also expect our other product candidates to face intense and increasing competition in the NASH and antiviral markets ~~and~~ as advanced technologies and products become available. Though there is currently no approved treatment for NASH, we expect significant competition from other companies in the development of new treatments for NASH and related conditions. In February 2019, Intercept Pharmaceuticals announced positive Phase 3 trial results for OCA (brand name Ocaliva^®) in NASH and has also signaled its intent to submit U.S. and European regulatory filings in the second half of calendar 2019 for approvals in this indication. We are aware of several other companies with NASH programs that are significantly more advanced than ours, including companies with compounds in Phase 3 clinical trials in NASH, namely Allergan (Tobira), Genfit, Intercept, ~~Genfit, Gilead,~~ and ~~Tobira (Allergan). In May 2016, the FDA granted conditional approval for Intercept’s FXR agonist (brand name Ocaliva~~^®~~) for the treatment of primary biliary cholangitis (PBC)~~ ~~in combination with first line therapy UDCA in adults with an inadequate response to UDCA, or as monotherapy in adults unable to tolerate UDCA~~.Madrigal. In addition, a number of companies ~~are~~have NASH or related programs with compounds in Phase 2 clinical ~~trials for NASH or related conditions.~~trials. These companies include 89bio, Afimmune, Akcea, Akero, Alberio, ~~Arisaph, Astra-Zeneca,~~ BMS, ~~Boehringer Ingelheim, Conatus,~~Can-Fite BioPharma, Cirius, Eli Lilly and Company, Enyo, Forma Therapeutics, Galectin, Galmed, Gilead, ~~GlaxoSmithKline,~~HighTide Biopharma , Immuron, Inventiva, ~~Madrigal,~~Kowa Company, Lipocine, Medicinova, Metacrine, Mitsubishi Tanabe Pharma, NGM, Noorik Biopharmaceuticals, Northsea Therapeutics, Nova Laboratories, Novartis, ~~NGM,~~ Novo Nordisk, NuSirt Biopharma, Pfizer, ~~Shire,~~Poxel SA, Promethera Biosciences, Sagimet Biosciences, TaiwanJ Pharmaceuticals, Terns, Viking, and ~~Viking.~~Zydus. A significant number of other companies are conducting earlier stage clinical trials that may be applicable in ~~NASH and other cholestatic diseases, including Bird Rock Bio, Arena Pharmaceuticals, Fast Forward Pharmaceuticals, Can-Fite Biopharma, Cymabay, Durect, Genkyotex, Ionis, Islet, Verlyx, and Zydus~~. NASH. There are also additional companies conducting preclinical studies in these disease areas.

Similarly, HBV and RSV represent competitive therapeutic areas. While there are effective antiviral medications prescribed for HBV, they generally have low true cure rates. Many companies are seeking to develop new HBV drugs that alone or in combination with other mechanisms could lead to a functional cure of HBV. ~~Arbutus,~~Assembly, Gilead, GSK/Ionis, HEC, ~~Ionis,~~ Johnson & Johnson, ~~Maxwell,~~Qilu, Replicor, ~~Roche~~ and ~~Spring Bank~~Roche have Phase 2 programs in progress, with many of these companies conducting earlier stage programs as well. In addition, a number of companies have Phase 1 or earlier stage HBV programs, including Aicuris, ~~Alnylam,~~Aligos, Altimmune, ~~Assembly, Enyo~~Arbutus, ENYO, Transgene, and ~~Transgene.~~Vir.

For RSV, there are currently no safe and effective therapies for already established RSV infection. Several companies are seeking new antiviral treatments for RSV infection in adult and pediatric ~~settings.~~patients. Ark ~~Bioscienes,~~Biosciences, Johnson & Johnson ~~Gilead, Pulmocide~~ and ReViral each have compounds in clinical ~~development, as does Ablynx with a potential therapeutic antibody.~~development. A prophylactic, monoclonal-antibody-based treatment from MedImmune, which is commercialized by AbbVie outside of the U.S., is approved for infants considered at high risk for RSV infection; however, studies have found that most young children with RSV infection were previously healthy, and thus would not normally be prescribed prophylactic treatment. In addition, a number of companies have RSV vaccines in development, primarily directed at prevention of RSV infection, and some companies are also evaluating vaccines in a therapeutic mode for treatment of established RSV infection.

If we are not able to develop new products that can compete effectively against our current and future competitors, our business will not grow and our financial condition, operations and stock price will suffer.

The ongoing COVID-19 pandemic may, directly or indirectly, adversely affect our business, results of operations and financial condition and our stock price.

Our business could be materially adversely affected, directly or indirectly, by the ongoing COVID-19 pandemic, which has spread to the countries in which we, our contract manufacturers, our clinical research contractors and our collaborators in clinical research do business. National, state and local governments in affected regions have implemented and may continue to implement safety precautions, including quarantines, border closures, increased border controls, travel restrictions, shelter-in-place orders and shutdowns, business closures, cancellations of public gatherings and other measures. Organizations and individuals are taking additional steps to avoid or reduce infection, including limiting travel and staying home from work. These measures are disrupting normal business operations both inside and outside of affected areas and have had significant negative impacts on businesses and financial markets worldwide.

We continue to monitor our operations and applicable government recommendations, and we have made modifications to our normal operations because of the COVID-19 pandemic, including requiring our employees to work remotely. Notwithstanding these measures, the COVID-19 pandemic could affect the health and availability of our workforce as well as those of the third parties whom we are relying on to take similar measures. In addition, we have experienced and will continue to experience disruptions to our business operations resulting from shelter-in-place policies and other restrictions on the ability of our employees to perform their jobs.

The COVID-19 pandemic has had an impact on our business operations. The extent and severity of the impact on our business and clinical trials will be determined largely by the extent of disruptions in the supply chains for our research and product candidates, delays in the conduct of current and future clinical trials, and reductions in the number of patients accessing AbbVie’s HCV regimens. For example, we have paused recruitment for our Phase 2b ARGON-2 study of EDP-305 in NASH patients and our Phase 1b study of EDP-514 in nuc-suppressed HBV patients. In addition, the impact of the COVID-19 pandemic on the operations of the FDA and other health authorities may delay potential approvals of our clinical trial protocols.

Although it is not possible at this time to estimate the entirety of the impact that the COVID-19 pandemic will have on our business, operations and employees, our contract manufacturers, our clinical research contractors, and our collaborators in clinical research, any continued spread of COVID-19, measures taken by governments, actions taken to protect employees from this disease, and the broad impact of the pandemic on all business activities and financial markets, may materially and adversely affect our business, results of operations and financial condition and our stock price.

We have not developed independently any approved products and we have limited clinical development experience, which makes it difficult to assess our ability to develop and commercialize our product candidates.

AbbVie has been ~~and will continue to be~~ responsible for all of the clinical development of our paritaprevir and glecaprevir protease inhibitor ~~product candidates.~~products. We have not yet demonstrated an ability to address successfully many of the risks and uncertainties associated with late stage clinical development, regulatory approval and commercialization of therapeutic products such as the ones we plan to develop independently. For example, to execute our business plan for development of our independent RSV, NASH, ~~PBC,~~and HBV ~~and RSV~~ programs, we will need to successfully:

~~execute clinical development of our product candidates and demonstrate acceptable safety and efficacy for them alone or in combination with other drugs or drug candidates~~;

~~obtain required regulatory approvals for the development and commercialization of our product candidates;~~

~~develop and maintain any future collaborations we may enter into for any of these programs;~~

~~obtain and maintain patent protection for our product candidates and freedom from infringement of intellectual property of others;~~

•

execute clinical development of our product candidates and demonstrate acceptable safety and efficacy for them alone or in combination with other drugs or drug candidates;

•

obtain required regulatory approvals for the development and commercialization of our product candidates;

•

develop and maintain any future collaborations we may enter into for any of these programs;

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obtain and maintain patent protection for our product candidates and freedom from infringement of intellectual property of others;

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establish acceptable commercial manufacturing arrangements with third-party manufacturers;

~~build and maintain robust sales, distribution and marketing capabilities, either independently or in collaboration with future collaborators;~~

•

build and maintain robust sales, distribution and marketing capabilities, either independently or in collaboration with future collaborators;

~~gain market acceptance for our product candidates among physicians, payers and patients; and~~

•

gain market acceptance for our product candidates among physicians, payors and patients; and

~~manage our spending as costs and expenses increase due to clinical trials, regulatory approvals and commercialization~~.

•

manage our spending as costs and expenses increase due to clinical trials, regulatory approvals and commercialization.

If we are unsuccessful in accomplishing these objectives, we may not be able to successfully develop and commercialize our product candidates and expand our business or continue our operations.

If we are not successful in developing EDP-305, EDP-938, EDP-514 and/or EDP-297 or in discovering further product candidates, ~~in addition to EDP-305 and EDP-938,~~ our ability to expand our business and achieve our strategic objectives will be impaired.

Much of our internal research is at preclinical stages. Research programs designed to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research programs may initially show promise in identifying additional potential product candidates, yet fail to yield product candidates for clinical development or commercialization for many reasons, including the following:

~~the research methodology used may not be successful in identifying additional potential product candidates~~;

•

the research methodology used may not be successful in identifying additional potential product candidates;

~~competitors may develop alternatives that render our product candidates less commercially viable or obsolete;~~

•

competitors may develop alternatives that render our product candidates less commercially viable or obsolete;

~~competitors may obtain intellectual property protection that effectively prevents us from developing a product candidate;~~

•

competitors may obtain intellectual property protection that effectively prevents us from developing a product candidate;

a product candidate may, on further study, be shown not to be an effective treatment in humans or to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria; and

•

a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all.

~~a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all.~~

Additional drug candidates that we may develop will require significant research, preclinical and clinical studies, regulatory approvals and commitments of resources before they can be commercialized. We cannot give assurance that our research will lead to the discovery of any additional drug candidates that will generate additional revenue for us. If we are unable to identify additional compounds suitable for preclinical and clinical development, we may not be able to obtain sufficient product revenue in future periods, which likely would result in significant harm to our financial position and adversely impact our stock price.

~~Expenses~~Changes in royalty revenue earned under our AbbVie agreement or changes in the level of expenses associated with development of our product candidates may cause our results of operations to fluctuate from period to period, which may result in operating losses.

~~Many~~As discussed above, our principal source of revenue continues to be our royalty revenue earned under the AbbVie collaboration agreement. There is uncertainty regarding this future revenue stream given the competitive nature of the market for HCV therapies, which reflects price competition, the changing nature of payer contracts of AbbVie and others, the varying rates of reimbursement in different countries and the impact of the COVID-19 pandemic on HCV sales.Changes in royalty revenue earned under the AbbVie collaboration agreement, including those that occur from period to period due to the annually tiered structure of our royalties, may cause our revenues and operating results to fluctuate significantly from quarter to quarter and could have an adverse effect on our stock price.

Additionally, many of the preclinical and clinical development activities required for our product candidates ~~have to~~must be contracted out to contract research organizations (CROs) at significant expense. We expect these expenses to increase substantially in the coming ~~year~~years as we advance compounds and conduct more clinical studies. ItHowever, the global impact of the COVID-19 shut-down has had, and is likely to continue to have, an adverse effect on the ability of our CROs to conduct preclinical and clinical studies. At this point in time we do not know to what extent these studies can or will be impacted by the pandemic. Therefore, now more than ever it is difficult to accurately predict the timing and amounts of these expenses, and we expect that they will vary from quarter to quarter. In addition, the FDA or other regulatory agencies may require more preclinical or clinical testing than we originally anticipated for any of our product candidates. We may also be required to purchase expensive competitor drugs for use in our trials, either to demonstrate potential treatment combinations or as comparators to our product candidates. We also conduct clinical development activities outside the U.S. and are therefore exposed to foreign currency fluctuations for payments made to CROs in currencies other than the U.S. dollar. As a result, the expenses of our development programs and our operating results may fluctuate significantly from quarter to quarter, and our stock price may be adversely affected.

If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop our product candidates, conduct our clinical trials and commercialize our product candidates.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. We are highly dependent upon our senior management, particularly Jay R. Luly, Ph.D., our Chief Executive Officer and President, Yat Sun Or, Ph.D., our Senior Vice President, Research and Development and Chief Scientific Officer, and Nathalie Adda, M.D., our Senior Vice President and Chief Medical Officer, as well as other employees and consultants. Although none of these individuals has informed us to date that he or she intends to retire or resign in the near future, the loss of the services of any of these individuals or one or more of our other members of senior management could delay or prevent the successful development of our product candidates.

Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the biotechnology and pharmaceutical fields is intense. In addition, we will need to hire additional personnel as we expand our clinical development and ultimately seek regulatory approvals and prepare for commercial activities. We may not be able to attract and retain quality personnel on acceptable terms.

We may encounter difficulties in managing our growth and expanding our operations successfully.

As we expand our research efforts and seek to advance our product candidates through clinical trials, we will need to expand our development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.

To date, our principal sources of revenue have been our collaboration agreements, including our current agreement with AbbVie. Future levels of royalties under the AbbVie agreement are uncertain. We have had no other products approved for commercial sale by us. Therefore, it is possible that we may incur operating losses in one or more years in the ~~future, and our ability to achieve sustained profitability is unproven.~~future.

~~In each of our 2017, 2016, 2015 and 2014 fiscal years our~~Our net income ~~resulted~~results primarily from ~~license payments, including milestone payments~~the revenue we ~~earned~~earn from AbbVie ~~and royalties we earned since December 2014~~ on net sales of ~~AbbVie’s~~its HCV regimens allocated to our protease inhibitors included in those regimens. There is no assurance, however, that we will report net income in subsequent years. To date, we have not commercialized any products ourselves.

Our principal source of revenue historically has been our collaboration agreements, including our current agreement with AbbVie. The level of future royalties on products containing paritaprevir or glecaprevir ~~are~~is uncertain given the competitive nature of the market for HCV ~~therapies,~~therapies. This is attributed to price competition, the changing nature of payer contracts of AbbVie and others, ~~and~~ the varying rates of reimbursement in different ~~countries.~~countries and the impact of the COVID-19 pandemic on HCV sales. At any time, AbbVie may choose not to continue its commercialization activities for the MAVYRET/MAVIRET regimen in one or ~~that regimen may not be accepted in the market.~~more countries. If we are unable to develop and commercialize any more of our product candidates, either alone or with a collaborator, or if any such product candidate does not achieve market acceptance, we may not generate sufficient product sales or product royalties. In addition, for any of our product candidates included in a treatment regimen with more than one active compound, it would be uncertain what portion of net sales of the regimen would be allocated to our product candidate. Even if we do generate significant product royalties or product sales, we may not be able to sustain profitability on a quarterly or annual basis. Our failure to sustain profitability could depress the market price of our common stock and ultimately could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. A decline in the market price of our common stock also could cause you to lose all or a part of your investment.

We may require substantial additional financing in the longer term to achieve our goals if the ~~further commercialization of paritaprevir containing regimens is curtailed or if any launch or commercialization~~sales of MAVYRET/MAVIRET ~~is not successful.~~decline substantially. A failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate some or all of our product development efforts.

Since our inception, most of our resources have been dedicated to the discovery and preclinical development of our product candidates. In particular, we have expended, and believe that we will continue to expend for the foreseeable future, substantial resources discovering and developing our proprietary product candidates. These expenditures will include costs associated with research and development, preclinical manufacturing of product candidates, conducting preclinical experiments and clinical trials and obtaining regulatory approvals, as well as commercializing any products later approved for sale. For the foreseeable future, we expect to incur substantial additional costs associated with research and development for our internally developed ~~programs, exclusive of costs incurred by AbbVie in developing MAVYRET/MAVIRET.~~programs. In addition, we may seek opportunities to in-license or otherwise acquire new therapeutic candidates and therapies.

Our future capital requirements depend on many factors, including:

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the amount of royalties generated from MAVYRET/MAVIRET sales under our existing collaboration with AbbVie;

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~~whether~~the number and characteristics of our ~~existing collaboration continues to generate substantial royalties to us;~~research and development programs;

~~the number and characteristics of the product candidates we pursue;~~

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the scope, progress, results and costs of researching and developing any of our product candidates on our own, including conducting advanced clinical trials;

~~the scope, progress, results and costs of researching and developing any of our product candidates on our own, including conducting preclinical research and clinical trials;~~

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delays and additional expense in our clinical trials as a result of the COVID-19 pandemic;

~~opportunities to in-license or otherwise acquire new therapeutic candidates and therapies;~~

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the cost of manufacturing our product candidates for clinical development and any products we successfully commercialize independently;

~~the timing, receipt and amount of royalties on paritaprevir and glecaprevir and any sales of our product candidates, if any, or royalties thereon;~~

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opportunities to in-license or otherwise acquire new technologies, therapeutic candidates and therapies;

~~the timing of, and the costs involved in, obtaining regulatory approvals for any product candidates we develop independently;~~

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the timing of, and the costs involved in, obtaining regulatory approvals for any product candidates we develop independently;

~~the cost of commercialization activities, if any, of any product candidates we develop independently that are approved for sale, including marketing, sales and distribution costs;~~

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the cost of commercialization activities, if any, of any product candidates we develop independently that are approved for sale, including marketing, sales and distribution costs;

~~the cost of manufacturing our product candidates and any products we successfully commercialize independently,~~ ~~including manufacturing for clinical development~~;

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the timing and amount of any sales of our product candidates, if any, or royalties thereon;

~~our ability to maintain our existing collaboration and to establish new collaborations, licensing or other arrangements and the financial terms of such agreements; and~~

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our ability to establish new collaborations, licensing or other arrangements, if any, and the financial terms of such arrangements;

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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including any litigation costs and the outcomes of any such litigation; and

t~~he costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including any litigation costs and the outcomes of any such litigation.~~
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potential fluctuations in foreign currency exchange rates.

Additional funds may not be available if and when we need them, on terms that are acceptable to us, or at all. Our ability to raise funds will depend on financial, economic and market conditions and other factors, many of which are beyond our control. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for one or more of our product candidates.

~~The U.S. Tax Cuts and Jobs Act enacted in December 2017 includes significant changes from current tax legislation which could result in significant changes to our future tax positions.~~

The U.S. Tax Cuts and Jobs Act (the “Tax Act”) enacted in December 2017 contains many provisions which differ from current tax law. These changes include, but are not limited to, the reduction in the federal corporate income tax rate from 35% to 21%, the elimination of a corporation’s ability to carryback net operating losses to prior taxable income periods and the elimination of the deductibility of certain performance-based equity awards under Section 162(m). We accounted for the Tax Act during the three months ended December 31, 2017 which resulted in an adjustment that decreased our deferred tax assets by $3.8 million due to the reduction of the federal corporate income tax rate from 35% to 21%. Estimates used to prepare our income tax expense during the quarter are based on our initial analysis of the Tax Act. Given the complexity of the act, anticipated guidance from the U.S. Treasury regarding implementation of the act, and potential for guidance from the Securities and Exchange Commission or the Financial Accounting Standards Board related to the act, these estimates may be adjusted during our fiscal 2018 to reflect any such guidance provided.

~~Our government funded contract for our antibiotic program, which was concluded in fiscal 2015, is subject to audit and adjustments that could affect our previously reported revenues.~~

Our contract with the National Institute of Allergy and Infectious Diseases, or NIAID, a division of the National Institutes of Health, an agency of the United States Department of Health and Human Services, to support our antibiotic program, was completed in fiscal 2015. Our contract-related costs and fees, including allocated indirect costs, are subject to audits and adjustments by negotiation between us and the U.S. government. As part of the audit process, the government audit agency verifies that all charges made by a contractor against a contract are legitimate and appropriate. Audits may result in recalculation of contract revenues and non-reimbursement of some contract costs and fees. Any audits of our contract related costs and fees could result in material adjustments to our reported revenue and require payments by us to the U.S. government.

Risks Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidates

Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes. If clinical trials of any of our proprietary product candidates are prolonged or delayed, we may be unable to commercialize our product candidates on a timely basis.

Clinical testing is expensive and, depending on the stage of development, can take a substantial time period to complete. Its outcome is inherently uncertain, and failure can occur at any time during clinical development. None of our product candidates in our pipeline other than paritaprevir and glecaprevir, which have been clinically developed by AbbVie, has yet to advance beyond completion of Phase 2 clinical trials. Any future clinical trials of our product candidates may fail to demonstrate sufficient safety and efficacy. Moreover, regulatory and administrative delays for any product candidate in our pipeline may adversely affect our or any future collaborator’s clinical development plans and jeopardize our or any future collaborator’s ability to attain product approval, commence product sales and compete successfully against other therapies.

Clinical trials can be delayed for a variety of reasons, including delays related to:

reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

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reaching an agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

~~failure of third-party contractors, such as CROs, or investigators to comply with regulatory requirements;~~

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failure of third-party contractors, such as CROs, or investigators to comply with regulatory requirements;

delay or failure in obtaining the necessary approvals from regulators or institutional review boards, or IRBs, in order to commence a clinical trial at a prospective trial site, or their suspension or termination of a clinical trial once commenced;

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failure to obtain on a timely basis, or at all, the necessary approvals from regulators or institutional review boards, or IRBs, in order to commence a clinical trial at a prospective trial site, or their suspension or termination of a clinical trial once commenced;

~~difficulty in recruiting suitable patients to participate in a trial;~~

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difficulty in recruiting suitable patients to participate in a trial;

~~difficulty in having patients complete a trial or return for post-treatment follow-up;~~

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the impact of the COVID-19 pandemic on the ability of CROs to conduct their own operations, resulting in, among other things, delays in recruitment or dosing of our clinical trials;

~~clinical sites deviating from trial protocol or dropping out of a trial;~~

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seasonality and variations in incidents of infection year to year (e.g. RSV) affecting enrollment in clinical trials;

~~problems with drug product or drug substance storage and distribution;~~

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difficulty in having patients complete a trial or return for post-treatment follow-up;

~~adding new clinical trial sites;~~

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clinical sites deviating from trial protocol or dropping out of a trial;

~~our inability to manufacture, or obtain from third parties, adequate supply of drug product sufficient to complete our preclinical studies and clinical trials;~~

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problems with drug product or drug substance storage and distribution;

governmental or regulatory delays and changes in regulatory requirements, policy and guidelines, including guidelines specifically addressing requirements for the development of treatments for NASH, PBC, RSV or HBV;

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adding new clinical trial sites;

program discontinuations or clinical holds for a program of a competitor, which could increase the level of regulatory scrutiny or delay data review or other response times by regulators with respect to one of our programs in the same class as the competitor’s program; or

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our inability to manufacture, or obtain from third parties, adequate supply of drug product sufficient to complete our preclinical studies and clinical trials;

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changes in governmental or regulatory administration, including, for example, administrative delays due to the planned relocation of the EMA to the Netherlands;

~~varying interpretations of data by the FDA, the EMA and similar foreign regulatory agencies.~~
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changes in regulatory requirements, policy and guidelines, including guidelines specifically addressing requirements for the development of treatments for RSV, NASH, or HBV;

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difficulty in obtaining and maintaining adequate insurance coverage;

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varying interpretations of data by the FDA, the EMA and similar foreign regulatory agencies.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trial is being conducted, by any Data Safety Monitoring Board, or DSMB, for such trial, or by the FDA, the EMA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side

effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. In addition, delays can occur due to safety concerns arising from trials or other clinical data regarding another company’s product candidate in the same compound class as one of ours. If we or any future collaborators experience delays in the completion of, or termination of, any clinical trial of one of our product candidates, the commercial prospects of the product candidate will be harmed, and our ability to commence product sales and generate product revenues from the product candidate will be delayed. In addition, any delays in completing our clinical trials will increase our costs in the long term and slow down our product candidate development and approval process. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

We may choose to test any of our clinical candidates preclinically and/or clinically in combination with other compounds with different mechanisms of action, and any adverse results from such testing may have adverse consequences for the further development potential of not only the combination but also the clinical candidate itself as a monotherapy or in combination with other mechanisms of action.

We expect that the further development of successful therapies in our principal disease areas of RSV, NASH ~~RSV~~ and HBV may require combining one or more of our compounds with other compounds with different mechanisms of action. To advance our programs and achieve favorable opportunities for any such combinations we may conduct preclinical testing, as well as clinical testing, with one of

our other compounds or with a compound of a third party, with or without a longer-term collaboration with any such party. We may choose to disclose such testing in advance, but we can anticipate that some of the testing would be done without any public disclosure. If any such testing produces adverse results, we may have to disclose it to regulatory authorities as part of the data available with respect to our product candidate and the data may have adverse consequences for the further development and the ultimate conditions attached to any approved use of the product candidate, whether in the combination tested or even as a monotherapy or in combination with other mechanisms.

EDP-305, EDP-938, EDP-514 or any other product candidate emerging from our current NASH, ~~PBC,~~ RSV and HBV programs may have undesirable side effects which may delay or prevent marketing approval, or, if approval is received, require our product candidate to be taken off the market, require us to include safety warnings or otherwise limit sales.

In our ~~NASH/PBC~~NASH program, we are developing agonists of the farnesoid X receptor, or FXR, that are designed to bind to that receptor and then trigger a response from it. The adverse effects from long-term exposure to the FXR drug class are not well known since within this class only two drugs have been approved by the FDA—Ocaliva^®, approved in May 2016 for PBC, and an older drug not commonly used but approved to treat cholesterol gallstones (by dissolving them) and a rare lipid storage disease. Unforeseen side effects from any of our product candidates could arise either during clinical development or, if approved, after the approved product has been marketed. The range and potential severity of possible side effects from systemic therapies like FXR agonists could be significant.

In addition, our drug candidates for NASH may be developed as a potential treatment for a severe disease that commonly occurs in patients with other serious conditions, including metabolic syndrome and diabetes. Any clinical trials in NASH will necessarily be conducted in patient populations that may be more prone than the general population to exhibit certain disease states or adverse events. It may be difficult to discern whether certain events or symptoms observed during our trials were due to our drug candidates or placebo, resulting in our company and our development programs being negatively affected even if such events or symptoms are ultimately determined to be unlikely related to our drug candidates.

In our RSV program, we are developing inhibitors of the N protein. No inhibitor of the RSV N protein has progressed beyond a Phase 2 clinical trial, so we are not yet able to assess the potential liabilities of an N inhibitor in large scale studies or in the general population. In addition, in RSV the principal target populations, namely infants, the elderly, and the immunocompromised, represent sensitive patient populations that could be more prone to adverse effects of therapy.

In our HBV program, we are developing modulators of capsid assembly. This is a new mechanistic approach to HBV, and no capsid assembly modulators have advanced beyond Phase 2 clinical studies. Thus, we are not able to predict what adverse effects may arise in longer term studies conducted in larger populations. In addition, long term consequences of an HBV infection can include hepatocellular carcinoma, liver failure, or liver transplant. It may be difficult to determine whether our drug candidates are playing a direct role in contributing to (or protecting from) these downstream effects of HBV infection.

If any of our product candidates receives marketing approval and we or others later identify undesirable or unacceptable side effects caused by such products:

~~regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;~~

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regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;

~~we may be required to change instructions regarding the way the product is administered, conduct additional clinical trials or change the labeling of the product;~~

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we may be required to change instructions regarding the way the product is administered, conduct additional clinical trials or change the labeling of the product;

~~we may be subject to limitations on how we may promote the product;~~

~~sales of the product may decrease significantly;~~

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we may be subject to limitations on how we may promote the product;

~~regulatory authorities may require us to take our approved product off the market;~~

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sales of the product may decrease significantly;

~~we may be subject to litigation or product liability claims; and~~

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regulatory authorities may require us to take our approved product off the market;

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we may be subject to litigation or product liability claims; and

~~our reputation may suffer.~~

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our reputation and our stock price may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenue from the sale of any product we develop.

If we are required to suspend or discontinue clinical trials due to side effects or other safety risks associated with our product candidates, or if we are required to conduct studies on the long-term effects associated with the use of any of those product candidates, commercialization any of those product candidates could be delayed or halted.

Clinical trials involving our product candidates may be suspended or terminated at any time for a number of safety-related reasons. For example, we may voluntarily suspend or terminate clinical trials if at any time one of our product candidates, or a combination therapy including any of them, presents an unacceptable safety risk to the clinical trial patients. In addition, IRBs or regulatory agencies may order the temporary discontinuation or termination of clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, including if they present an unacceptable safety risk to patients. Administering any product candidate to humans may produce undesirable side effects. The existence of undesirable side effects resulting from any of our product candidates, or a combination therapy including any of them, could cause us or regulatory authorities, such as the FDA or EMA, to interrupt, delay or halt clinical trials of our product candidates and could result in the FDA or

EMA or other regulatory agencies denying further development or approval of our product candidates for any or all targeted indications. This, in turn, could prevent us from commercializing our product candidates.

Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials.

The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials, if any. In addition, results of Phase 3 clinical trials in one or more ethnic groups are not necessarily indicative of results in other ethnic groups. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy results despite having progressed through preclinical studies and initial clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to adverse safety profiles or lack of efficacy, notwithstanding promising results in earlier studies. Similarly, future clinical trial results may not be successful for these or other reasons.

Product candidate development risk is heightened by any changes in the planned clinical trials compared to the completed clinical trials. As product candidates are developed through preclinical early and late stage clinical trials towards approval and commercialization, it is customary that various aspects of the development program, such as manufacturing and formulation, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could make the results of planned clinical trials or other future clinical trials we may initiate less predictable and could cause our product candidates to perform differently, which could delay completion of clinical trials, delay approval of our product candidates and/or jeopardize our ability to commence product sales and generate revenues.

The regulatory approval processes of the FDA, the EMA and other comparable foreign authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain timely regulatory approval for our product candidates, our business will be substantially harmed.

The regulatory approval process is expensive and, while the time required to gain FDA and foreign regulatory approval is uncertain, it may take years. Regulatory approvals are unpredictable and depend upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of preclinical and clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We may be required to undertake and complete certain additional preclinical studies to generate toxicity and other data required to support the submission of a New Drug Application, or NDA, to the FDA or comparable application to other regulatory authorities. AbbVie obtained all regulatory approvals for its paritaprevir-containing regimens and for MAVYRET/MAVIRET, which contains glecaprevir. We have not obtained regulatory approval by ourselves for any of our ~~wholly owned~~wholly-owned product candidates and it is possible that none of our existing product candidates or any of our future product candidates will ever obtain regulatory approval. Furthermore, approval in the United States by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

We cannot be assured that after spending substantial time and resources, we will obtain regulatory approvals in any desired jurisdiction. Even if we were to obtain approval, regulatory authorities may grant approval contingent on the performance of costly post-marketing clinical trials or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Significant clinical trial delays could allow our competitors to obtain marketing approval before we do or could in effect shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates. In addition, it may ultimately not be possible to achieve the prices intended for our products. In many foreign countries, including those in the European Union, a product candidate must be approved for reimbursement before it can be approved for sale in that country. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates and our business.

Even if we receive regulatory approval for any of our product candidates we develop independently, we will be subject to ongoing FDA obligations and continued regulatory review in other jurisdictions, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we or our collaborators fail to comply with regulatory requirements or experience unanticipated problems with our products.

Any regulatory approvals that we receive for our product candidates we develop independently may be subject to limitations on the approved indicated uses for which the product may be marketed or subject to certain conditions of approval, or may contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate.

In addition, if the FDA approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, as well as continued compliance with current good manufacturing practices, or cGMP, and good clinical practices, or GCP, for any clinical trials that we or our collaborators conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we, or AbbVie in the case of any licensed HCV product, are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or AbbVie are not able to maintain regulatory compliance, our product candidates or AbbVie’s licensed HCV products may lose any marketing approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.

We may delay or terminate the development of a product candidate at any time if we believe the perceived market or commercial opportunity does not justify further investment, which could materially harm our business and adversely affect our stock price.

Even though the results of preclinical studies and clinical trials that we have conducted or may conduct in the future may support further development of one or more of our product candidates, we may delay, suspend or terminate the future development of a product candidate at any time for strategic, business, financial or other reasons, including the determination or belief that the emerging profile of the product candidate is such that it may not receive regulatory approvals in key markets, gain meaningful market acceptance, otherwise provide any competitive advantages in its intended indication or market or generate a significant return to stockholders. Such a delay, suspension or termination could materially harm our business, results of operations or financial condition. In addition, AbbVie has the right to make decisions regarding the ~~development and~~ commercialization of paritaprevir and glecaprevir without consulting us, and may make decisions with which we do not agree.

Even if AbbVie successfully commercializes MAVYRET/MAVIRET, or even if we are able to commercialize any other treatment regimen containing one of our product candidates from any of our proprietary discovery programs, MAVYRET/MAVIRET or the resulting products, as the case may be, may become subject to unfavorableUnfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives in the United States ~~which would~~could harm our business.

The regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. In the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, collectively referred to as the ACA, ishas significantly ~~changing~~changed the way healthcare is financed by both governmental and private insurers. While we cannot predict what impact on federal reimbursement policies this law or any amendment to it will continue to have in general or specifically on MAVYRET/MAVIRET or any product or regimen that we may commercialize, the ACA or any such amendment may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of new products. In addition, although the United States Supreme Court has upheld the constitutionality of most of the ACA, several states have not implemented certain sections of the ACA, including 1814 that have rejected the expansion of Medicaid eligibility for low income citizens, and some members of the U.S. Congress are still working to repeal the ACA. More recently, President Trump and the ~~Republican majorities~~Republicans in both houses of the U.S. Congress have been seeking to repeal or replace all or portions of the ACA but to date they have been unable to agree on any such legislation. On December 14, 2018, a United States District Court judge in Texas ruled that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017. While this U.S. District Court judge, as well as the Trump administration and Centers for Medicare and Medicaid Services, have stated that the ruling will have no immediate effect pending appeal of the decision, on December 18, 2019, the Fifth Circuit U.S. Court of Appeals held that the individual mandate is unconstitutional and remandedthe case to the District Court to reconsiderits earlier invalidation of the entire Affordable Care Act. It is unclear how this decision, subsequent proceedings and appeals in this case, and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act. We cannot predict what legislation, if any, to repeal orreplace the ACA will become law, or what impact any such legislation, or the Texas court challenge, may have on us or on AbbVie’s ~~commercialization~~sales of ~~its HCV regimens.~~MAVYRET/MAVIRET.

In addition, other legislative changes have been proposed since the Affordable Care Act was enacted. There has been increasing legislative and enforcement interest in the United States with respect to drug pricing practices. Specifically, there have been several recent U.S. congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for drugs. We expect any healthcare reform measures that may be adopted in the future could result in more rigorous coverage criteria and an additional downward pressure on the price that AbbVie receives for MAVYRET/MAVIRET, which could seriously harm our future revenues, and the price of our common stock could be materially adversely affected.

Our ability to commercialize any product candidate successfully, as well as AbbVie’s continued commercialization of MAVYRET/MAVIRET, will also depend in part on the extent to which reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. In the case of HCV, limitations of coverage have recently been used to limit access to HCV treatments for only those patients with more advanced fibrosis. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and, in many cases involving HCV drugs, seeking discounts in exchange for greater patient

access to a particular HCV drug. In addition, there are private and public payors challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product that we may commercialize and, if reimbursement is available, the level of reimbursement. In addition, reimbursement may impact the demand for, or the price of, MAVYRET/MAVIRET or any product candidate for which we may obtain marketing approval. If reimbursement is not available or is available only to limited levels, AbbVie may not be successful in commercializing MAVYRET/MAVIRET and we may not be able to successfully commercialize any product candidate for which we may seek marketing approval.

There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or comparable authorities in other jurisdictions. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also be insufficient to cover our and any collaborator’s costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. AbbVie’s inability to ~~promptly~~continue to obtain coverage and profitable payment rates from both government-funded and private payors for MAVYRET/MAVIRET, or our inability to doobtain the same for any product candidate that we develop, could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

In general, the United States and several other jurisdictions are considering a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. We expect to experience pricing pressures in connection with the sale of any products that we develop or that are being commercialized under our collaboration with AbbVie. The implementation of cost containment measures or other healthcare reforms may limit our ability to generate revenue, maintain profitability or commercialize our product candidates.

If, in the future, we are unable to establish our own sales, marketing and distribution capabilities or enter into licensing or collaboration agreements for these purposes, we may not be successful in commercializing any product candidates.

We do not have a sales or marketing infrastructure and have no sales, marketing or distribution experience. We will seek to either build our own commercial infrastructure to commercialize any products if and when they are approved, or enter into licensing or collaboration agreements where our collaborator is responsible for commercialization, as in the case of our collaboration with AbbVie, or where we have the right to assist in the future development and commercialization of such products.

To develop internal sales, distribution and marketing capabilities, we will have to invest significant amounts of financial and management resources, some of which will be committed prior to any confirmation that any of our proprietary product candidates will be approved. For product candidates for which we decide to perform sales, marketing and distribution functions ourselves, we could face a number of additional risks, including:

Where and when appropriate, we may elect to utilize contract sales forces or distribution partners to assist in the commercialization of our product candidates. If we enter into arrangements with third parties to perform sales, marketing and distribution services for our products, the resulting revenues or the profitability from these revenues to us are likely to be lower than if we had sold, marketed and distributed our products ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute our product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of these third parties may fail to devote the necessary resources and attention to sell, market and distribute our products effectively.

If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.

Our commercial success depends upon significant market acceptance among physicians, patients and healthcare payors of MAVYRET/MAVIRET, as well as similar market acceptance of any product candidates we are developing independently.

MAVYRET/MAVIRET, as well as EDP-305, EDP-938, or any other product candidate that we may develop in the future, whether as part of a combination therapy or as a monotherapy, may not gain market acceptance among physicians, healthcare payors, patients and the medical community. The degree of market acceptance of MAVYRET/MAVIRET or of any product candidate for which we obtain approval for commercial sale, will depend on a number of factors, including:

If treatment regimens containing one of our product candidates are approved and then fail to achieve market acceptance, we may not be able to generate significant additional revenue. Further, if new, more favorably received therapies are introduced after any such regimen achieves market acceptance, then we may not be able to maintain that market acceptance over time.

Foreign governments tend to impose strict price controls, which may adversely affect our future profitability.

In most foreign countries, particularly in the European Union and Japan, prescription drug pricing and/or reimbursement is subject to governmental control. In those countries that impose price controls, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies.

Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we (or AbbVie in the case of MAVYRET/MAVIRET) might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues that are generated from the sale of the product in that country. If reimbursement of MAVYRET/MAVIRET or of any of our product candidates is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, or if there is competition from lower priced cross-border sales, our results of operations will be negatively affected.

Commercial success of our product candidates depends upon significant market acceptance among physicians, patients and healthcare payors of any resulting approved drug.

MAVYRET/MAVIRET, as well as EDP-305, EDP-938, EDP-514 and any other product candidate that we may develop in the future, whether as part of a combination therapy or as a monotherapy, are subject to market acceptance among physicians, healthcare payors, patients and the medical community. The degree of market acceptance of MAVYRET/MAVIRET or of any product candidate for which we obtain approval for commercial sale, will depend on a number of factors, including:

We may not be successful in establishing new product collaborations, which could adversely affect our ability to develop and commercialize one or more of our product candidates. If we are unsuccessful in maintaining or forming alliances on favorable terms, our business may not succeed.

We may seek to enter into additional product collaborations in the future, including alliances with other biotechnology or pharmaceutical companies, to enhance and accelerate the development and commercialization of one or more of our product candidates. We face significant competition in seeking appropriate collaborators and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish other product collaborations or other alternative arrangements for any product candidates and programs because our research and development pipeline may be insufficient, our product candidates and programs may be deemed to be at too early of a stage of development for collaborative effort and/or third parties may not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy. Even if we are successful in our efforts to establish product collaborations, the terms that we agree upon may not be favorable to us and we may not be able to maintain such product collaborations if, for example, development or approval of a product candidate is delayed or sales of an approved product are disappointing.

If our existing collaboration agreement with AbbVie is terminated, or if we determine that entering into other product collaborations is in our best interest but we either fail to enter into, delay in entering into or fail to maintain such collaborations:

We intend to rely on third-party manufacturers to produce our development-stage product candidate supplies and any commercial supplies of any approved product candidates. Any failure by a third-party manufacturer to produce acceptable supplies for us may delay or impair our ability to initiate or complete our clinical trials or sell any resulting product.

We do not currently own or operate any manufacturing facilities. We plan to continue to work with third-party contract manufacturers to produce sufficient quantities of any product candidates for preclinical testing, clinical trials and commercialization. If we are unable to arrange for such a third-party manufacturing source for any of our product candidates, or fail to do so on commercially reasonable terms, we may not be able to successfully produce, develop and market one or more of our product candidates, or we may be delayed in doing so.

Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates ourselves, including reliance on the third party for regulatory compliance and quality control and assurance, volume production, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control (including a failure to synthesize and manufacture our product candidates in accordance with our product specifications), shutdowns of manufacturing sites as a result of the COVID-19 pandemic, and the possibility of termination or nonrenewal of the agreement by the third party at a time that is costly or damaging to us. In addition, the FDA and other regulatory authorities require that our product candidates be manufactured according to cGMP and similar foreign standards. Pharmaceutical manufacturers and their subcontractors are required to register their facilities and/or products manufactured at the time of submission of the marketing application and then annually thereafter with the FDA and certain state and foreign agencies. They are also subject to periodic unannounced inspections by the FDA, state and other foreign authorities. Any subsequent discovery of problems with a product, or a manufacturing or laboratory facility used by us or our collaborators, may result in restrictions on the product or on the manufacturing or laboratory facility, including marketed product recall, suspension of manufacturing, product seizure, or a voluntary withdrawal of the drug from the market. Any failure by our third-party manufacturers to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of any of our product candidates.

We plan to rely on third-party manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical studies. There are a small number of suppliers for certain capital equipment and materials that we plan to use to manufacture our drugs. Such suppliers may not sell these materials to our manufacturers at the times we need them or on commercially reasonable terms. Moreover, we currently do not have any agreements for the production of these materials. Although we do not intend to begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete the clinical trial, any significant delay in the supply of a product candidate or the material components thereof for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay completion of our clinical studies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these materials after regulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenue from the sale of our product candidates.

Contract manufacturers may not be able to manufacture our product candidates at a cost or in quantities or in a timely manner necessary to develop and commercialize them. If we successfully commercialize any of our product candidates, to meet our projected needs we may need to find third parties that will increase their scale of production, or we may have to establish or access large-scale commercial manufacturing capabilities. We may require additional funds, personnel and other resources to build, lease or operate any manufacturing facility.

A portion of our research and a portion of our manufacturing of certain key intermediates used in the manufacture of the active pharmaceutical ingredients for our product candidates takes place in China through third-party researchers and manufacturers. A significant disruption in the operation of those researchers or manufacturers, or a trade war, political unrest or an epidemic in China, such as the COVID-19 pandemic, could materially adversely affect our business, financial condition and results of operations.

Although manufacturing for MAVYRET/MAVIRET is being conducted by AbbVie, we have relied on third parties located in China to manufacture and supply certain key intermediates used in the manufacture of our active pharmaceutical ingredients, or API, for our current product candidates, and we expect to continue to use such third party manufacturers for such intermediates for any product candidates we develop independently. Any disruption in production or inability of our manufacturers in China to produce adequate quantities to meet our needs, whether as a result of a natural disaster, pandemics or other causes, could impair our ability to operate our business on a day-to-day basis and to continue our research and development of our product candidates. We also use contract researchers in China to conduct a portion of our research for our early stage programs. Any disruption in the team conducting that research could cause delays in one or more of our research programs and could require us to curtail one or more programs, at least until we could

contract for that research to be done elsewhere. For example, either of these risks could be triggered by an epidemic such as the recent outbreak of COVID-19 in the Wuhan region of China. To date our contract manufacturer in China, which is not located in the Wuhan region, has not had any material delays in its ability to deliver API and other services.Furthermore, since these researchers and manufacturers are located in China, we are exposed to the possibility of product supply disruption and increased costs in the event of changes in the policies of the United States or Chinese ~~government,~~governments, political unrest or unstable economic conditions in China. For example, a trade war could lead to tariffs on the chemical intermediates we use that are manufactured in China. Any of these matters could materially and adversely affect our business and results of operations. Any recall of the manufacturing lots or similar action regarding our API used in clinical trials could delay the trials or detract from the integrity of the trial data and its potential use in future regulatory filings. In addition, manufacturing interruptions or failure to comply with regulatory requirements by any of these manufacturers could significantly delay clinical development of potential products and reduce third-party or clinical researcher interest and support of proposed trials. These interruptions or failures could also impede commercialization of our product candidates and impair our competitive position. Further, we may be exposed to fluctuations in the value of the local currency in China. Future appreciation of the local currency could increase our costs. In addition, our labor costs could continue to rise as wage rates increase due to increased demand for skilled laborers and the availability of skilled labor declines in China.

We will rely on third parties to monitor, support, conduct and/or oversee clinical trials of our product candidates that we develop independently and, in some cases, to maintain regulatory files for those product candidates. If we are not able to maintain or secure agreements with such third parties on acceptable terms, if these third parties do not perform their services as required, or if these third parties fail to timely transfer any regulatory information held by them to us, we may not be able to obtain regulatory approval for, or commercialize, our product candidates.

We will rely on CROs, hospitals, clinics, academic institutions and other third-party collaborators who are outside our control to monitor, support, conduct and/or oversee preclinical and clinical studies of our product candidates. We will also rely on third parties to perform clinical trials of our product candidates when they reach that stage. As a result, we have less control over the timing and cost of these studies and the ability to recruit trial subjects than if we conducted these trials wholly by ourselves. If we are unable to maintain or enter into agreements with these third parties on acceptable terms or ~~if any such~~ engagement is terminated, we may be unable to enroll patients on a timely basis or otherwise conduct our trials in the manner we anticipate. In the case of our ongoing studies, we have recently announced a pausing of recruitment and dosing of the ARGON-2 Phase 2b NASH study and Part 2 of our Phase 1a/1b study of EDP-514 in nuc-suppressed HBV patients as a result of the COVID-19 pandemic, which is expected to delay completion of those clinical trials. In addition, there is no guarantee that these third parties will devote adequate time and resources to our studies

or perform as required by a contract or in accordance with regulatory requirements, including maintenance of clinical trial information regarding our product candidates. If these third parties fail to meet expected deadlines, fail to timely transfer to us any regulatory information, fail to adhere to protocols or fail to act in accordance with regulatory requirements or our agreements with them, or if they otherwise perform in a substandard manner or in a way that compromises the quality or accuracy of their activities or the data they obtain, then clinical trials of our product candidates may be extended, delayed or terminated, or our data may be rejected by the FDA or regulatory agencies.

To the extent we elect to enter into additional licensing or collaboration agreements to partner our product candidates, our dependence on such relationships may adversely affect our business.

Our commercialization strategy for some of our product candidates may depend on our ability to enter into collaboration agreements with other companies to obtain access to other compounds for use in combination with any of our product candidates or for assistance and funding for the development and potential commercialization of any of these product candidates, similar to what we have done with AbbVie. Supporting diligence activities conducted by potential collaborators and negotiating the financial and other terms of a collaboration agreement are long and complex processes with uncertain results. Even if we are successful in entering into one or more additional collaboration agreements, collaborations can involve greater uncertainty for us, as we may have limited or no control over certain aspects of our collaborative programs. We may determine that continuing a collaboration under the terms provided is not in our best interest, and we may terminate the collaboration. Our collaborators could delay or terminate their agreements with us, and our product candidates subject to collaborative arrangements may never be successfully commercialized.

Further, our collaborators may develop alternative products or pursue alternative technologies either on their own or in collaboration with others, including our competitors, and the priorities or focus of our collaborators may shift such that our programs receive less attention or resources than we would like, or they may be terminated altogether. Any such actions by our collaborators may adversely affect our business prospects and ability to earn revenue. In addition, we could have disputes with our collaborators, such as the interpretation of terms in our agreements. Any such disagreements could lead to delays in the development or commercialization of any potential products or could result in time-consuming and expensive litigation or arbitration, which may not be resolved in our favor.

Even with respect to programs that we intend to commercialize ourselves, we may enter into agreements with collaborators to share in the burden of conducting clinical trials, manufacturing and marketing our product candidates or products. In addition, our ability to apply our proprietary technologies to develop proprietary compounds will depend on our ability to establish and maintain licensing arrangements or other collaborative arrangements with the holders of proprietary rights to such compounds. We may not be able to establish such arrangements on favorable terms or at all, and our collaborative arrangements may not be successful.

We could be unsuccessful in obtaining or maintaining adequate patent protection for one or more of our product candidates.

Our commercial success will depend, in large part, on our ability to obtain and maintain patent and other intellectual property protection with respect to our product candidates. We cannot be certain that patents will be issued or granted with respect to our patent applications that are currently pending, or that issued or granted patents will not later be found to be invalid and/or unenforceable, be interpreted in a manner that does not adequately protect our products, or otherwise provide us with any competitive advantage. The patent position of biotechnology and pharmaceutical companies is generally uncertain because it involves complex legal and factual considerations. The standards applied by the United States Patent and Trademark Office and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in biotechnology and pharmaceutical patents. Consequently, patents may not issue from our pending patent applications. As such, we do not know the degree of future protection that we will have on our proprietary products and technology, if any, and a failure to obtain adequate intellectual property protection with respect to our product candidates and proprietary technology could have a material adverse impact on our business.

In addition, certain of our activities have been funded, and may in the future be funded, by the United States federal government. For example, the preclinical and early clinical development of the lead antibiotic product candidate in our former antibiotic program, which we are no longer developing, was funded under a contract with NIAID, an entity of the United States federal government. When new technologies are developed with United States federal government funding, the government obtains certain rights in any resulting patents, including a nonexclusive license authorizing the government to use the invention for non-commercial purposes. These rights may permit the government to disclose our confidential information to third parties and to exercise “march-in” rights to use or allow third parties to use our patented technology. The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the United States government-funded technology, or because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations or to give preference to United States industry. In addition, United States government-funded inventions must be reported to the government and United States government funding must be disclosed in any resulting patent applications. In addition, our rights in such inventions are subject to certain requirements to manufacture products in the United States.

Issued patents covering one or more of our product candidates could be found invalid or unenforceable if challenged in court.

Despite measures we take to obtain patent and other intellectual property protection with respect to our product candidates and proprietary technology, any of our intellectual property rights could be challenged or invalidated. For example, if we were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States and in some other jurisdictions, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the United States Patent and Trademark Office, or the applicable foreign counterpart, or made a misleading statement, during prosecution. Although we believe that we have conducted our patent prosecution in accordance with the duty of candor and in good faith, the outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on a product candidate. Even if a defendant does not prevail on a legal assertion of invalidity and/or unenforceability, our patent claims may be construed in a manner that would limit our ability to enforce such claims against the defendant and others. Any loss of patent protection could have a material adverse impact on one or more of our product candidates and our business.

Enforcing our intellectual property rights against third parties may also cause such third parties to file other counterclaims against us, which could be costly to defend and could require us to pay substantial damages, cease the sale of certain products or enter into a license agreement and pay royalties (which may not be possible on commercially reasonable terms or at all). Any efforts to enforce our intellectual property rights are also likely to be costly and may divert the efforts of our scientific and management personnel.

Claims that our product candidates or the sale or use of our products infringe the patent or other intellectual property rights of third parties could result in costly litigation or could require substantial time and money to resolve, even if litigation is avoided.

Our commercial success depends upon our ability to develop, manufacture, market and sell our product candidates and use our proprietary technology without infringing the intellectual property rights of others. We cannot guarantee that our product candidates or any uses of our product candidates do not and will not in the future infringe third-party patents or other intellectual property rights.

Third parties might allege that we or our collaborators are infringing their patent rights or that we have misappropriated their trade secrets, or that we are otherwise violating their intellectual property rights, whether with respect to the manner in which we have conducted our research or to the composition, use or manufacture of the compounds we have developed or are developing with our collaborators. Such third parties might resort to litigation against us or other parties we have agreed to indemnify, which litigation could be based on either existing intellectual property or intellectual property that arises in the future.

It is also possible that we failed to identify, or may in the future fail to identify, relevant patents or patent applications held by third parties that cover our product candidates. For example, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Other patent applications in the United States and several other jurisdictions are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Furthermore, publication of discoveries in the scientific or patent literature often lags behind actual discoveries. Therefore, we cannot be certain that we or our collaborators were the first to invent, or the first to file patent applications on, our product candidates or for their uses, or that our product candidates will not infringe patents that are currently issued or that are issued in the future. In the event that a third party has also filed a patent application covering one of our product candidates or a similar invention, we may have to participate in an adversarial proceeding, known as an interference, declared by the U.S. Patent and Trademark Office or its foreign counterpart to determine priority of invention. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our products or their use.

In order to avoid or settle potential claims with respect to any patent or other intellectual property rights of third parties, we may choose or be required to seek a license from a third party and be required to pay license fees or royalties or both, which could be substantial. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced, by court order or otherwise, to cease some or all aspects of our business operations, if, as a result of actual or threatened patent or other intellectual property claims, we are unable to enter into licenses on acceptable terms. Further, we could be found liable for significant monetary damages as a result of claims of intellectual property infringement. For example, we have received, and may in the future receive, offers to license and demands to license from third parties claiming that we are infringing their intellectual property or owe license fees and, even if such claims are without merit, there can be no assurance that we will successfully avoid or settle such claims.

In addition, if AbbVie licenses or otherwise acquires rights to intellectual property controlled by a third party in various circumstances, for example, where a product could not be legally developed or commercialized in a country without the third-party intellectual property right, it is entitled under our collaboration agreement to decrease payments payable to us on a product-by-product basis and, in certain cases, on a country-by-country basis. Any of the foregoing events could harm our business significantly.

Defending against claims of patent infringement, misappropriation of trade secrets or other violations of intellectual property rights could be costly and time consuming, regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other company business. Claims that our product candidates or the sale or use of our future products infringe, misappropriate or otherwise violate third-party intellectual property rights could therefore have a material adverse impact on our business.

Unfavorable outcomes in intellectual property litigation could limit our research and development activities and/or our ability to commercialize certain products.

If third parties successfully assert their intellectual property rights against us, we might be barred from using certain aspects of our technology, or barred from developing and commercializing certain products. Prohibitions against using certain technologies, or prohibitions against commercializing certain products, could be imposed by a court or by a settlement agreement between us and a plaintiff. In addition, if we are unsuccessful in defending against allegations that we have infringed, misappropriated or otherwise violated patent or other intellectual property rights of others, we may be forced to pay substantial damage awards to the plaintiff. There is inevitable uncertainty in any litigation, including intellectual property litigation. There can be no assurance that we would prevail in any intellectual property litigation, even if the case against us is weak or flawed. If litigation leads to an outcome unfavorable to us, we may be required to obtain a license from the intellectual property owner in order to continue our research and development programs or to market any resulting product. It is possible that the necessary license will not be available to us on commercially acceptable terms, or at all. Alternatively, we may be required to modify or redesign our products in order to avoid infringing or otherwise violating third-party intellectual property rights. This may not be technically or commercially feasible, may render our products less competitive, or may delay or prevent the entry of our products to the market. Any of the foregoing could limit our research and development activities, our ability to commercialize one or more product candidates, or both.

Most of our competitors are larger than we are and have substantially greater resources. They are, therefore, likely to be able to sustain the costs of complex intellectual property litigation longer than we could. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to conduct our clinical trials, continue our internal research programs, in-license needed technology, or enter into strategic partnerships that would help us bring our product candidates to market.

In addition, any future intellectual property litigation, interference or other administrative proceedings will result in additional expense and distraction of our personnel. An adverse outcome in such litigation or proceedings may expose us or any future strategic partners to loss of our proprietary position, expose us to significant liabilities, or require us to seek licenses that may not be available on commercially acceptable terms, if at all, each of which could have a material adverse effect on our business.

Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes the market price of our common stock to decline.

During the course of any intellectual property litigation, there could be public announcements of the results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our products, programs or intellectual property could be diminished. Accordingly, the market price of our common stock may decline. Such announcements could also harm our reputation or the market for our future products, which could have a material adverse effect on our business.

Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information.

In addition to patents, we rely on trade secrets, technical know-how and proprietary information concerning our business strategy and product candidates in order to protect our competitive position in the field of HCV, other antivirals and liver disease. In the course of our research and development activities and our business activities, we often rely on confidentiality agreements to protect our proprietary information. Such confidentiality agreements are used, for example, when we talk to vendors of laboratory or clinical development services or potential strategic partners. In addition, each of our employees is required to sign a confidentiality agreement and invention assignment agreement upon joining our company. We take steps to protect our proprietary information, and our confidentiality agreements and invention assignment agreements are carefully drafted to protect our proprietary interests. Nevertheless, there can be no guarantee that an employee or an outside party will not make an unauthorized disclosure of our proprietary confidential information. This might happen intentionally or inadvertently. It is possible that a competitor will make use of such information, and that our competitive position will be compromised, in spite of any legal action we might take against persons making such unauthorized disclosures. In addition, to the extent that our employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

Trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, business partners or outside scientific collaborators might intentionally or inadvertently disclose our trade secret information to competitors or our trade secrets may otherwise be misappropriated. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States sometimes are less willing than United States courts to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.

Our collaborators may have rights to publish data and other information to which we have rights. In addition, we sometimes engage individuals or entities to conduct research relevant to our business. The ability of these individuals or entities to publish or otherwise publicly disclose data and other information generated during the course of their research is subject to certain contractual limitations. These contractual provisions may be insufficient or inadequate to protect our confidential information. If we do not apply for patent protection prior to such publication, or if we cannot otherwise maintain the confidentiality of our proprietary technology and other confidential information, then our ability to obtain patent protection or to protect our trade secret information may be jeopardized, which could adversely affect our business.

Intellectual property rights do not necessarily protect us from all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

Any of the aforementioned threats to our competitive advantage could have a material adverse effect on our business.

Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with many other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining, maintaining and enforcing patents in the biopharmaceutical industry involves both technological complexity and legal complexity. Therefore, the process of obtaining, maintaining and enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, recent legislative and judicial developments in the United States and elsewhere have in some cases narrowed the protection afforded to patent owners, made patents more difficult to obtain, or increased the uncertainty regarding the ability to obtain, maintain and enforce patents. For example, Congress recently passed patent reform legislation, and may pass patent reform legislation in the future. The United States Supreme Court has ruled on several patent cases in recent years, and in certain circumstances has narrowed the scope of patent protection available or otherwise weakened the rights of patent owners. In

addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions and actions by the United States Congress, the federal courts, the United States Patent and Trademark Office, and their respective foreign counterparts, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to maintain and enforce our existing patents and patents that we might obtain in the future.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.

We face an inherent risk of product liability as a result of the clinical testing of our product candidates, and we will face an even greater risk if we commercialize any product candidates. For example, we may be sued if any of our product candidates, including any that are developed in combination therapies, allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. There is also risk that third parties we have agreed to indemnify could incur liability.

Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop. We currently carry product liability insurance covering our clinical studies in the amount of $10.0 million in the aggregate. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.

Our internal computer systems, or those of our collaborator, CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of development programs for our product candidates.

Despite the implementation of security measures, our internal computer systems and those of our collaborators, CROs, and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, pandemics, terrorism, war and telecommunication and electrical failures. Information security risks have significantly increased in recent years in part due to the proliferation of new technologies and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security breaches.

While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our independent drug development programs. For example, the loss of clinical trial data from ongoing or future clinical trials for any of our product candidates could result in delays in regulatory approval efforts and significantly increase costs to recover or reproduce the data. Our information security systems are also subject to laws and regulations requiring that we take measures to protect the privacy and security of certain information we gather and use in

our business. For example, HIPAA and its implementing regulations impose, among other requirements, certain regulatory and contractual requirements regarding the privacy and security of personal health information. In addition to HIPAA, numerous other

federal and state laws, including, without limitation, state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use, disclosure and storage of personal information. To the extent that any disruption or security breach were to result in a loss of or damage to data or applications, or inappropriate disclosure of confidential or proprietary information or personal health information, we could incur substantial liability, our reputation would be damaged, and the further development of our product candidates could be delayed.

Our relationships with customers and third-party payors in the United States and elsewhere will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products for which we obtain marketing approval. Restrictions under applicable federal, state and foreign healthcare laws and regulations include the following:

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which could have a material adverse effect on our business. If any of the physicians or other providers or entities with whom we expect to do business, including our collaborators, are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs, which could also materially affect our business.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials or our or third parties’ disposal of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

We may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

We maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials. This insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of hazardous or radioactive materials.

Our insurance policies are expensive and only protect us from specified business risks, which will leave us exposed to significant uninsured liabilities.

We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, property, auto, workers’ compensation, products liability and directors’ and officers’ insurance. We do not know, however, if we have adequate levels of coverage for any liability we may incur, or whether we will always be able to continue to maintain such insurance. Any significant uninsured liability may require us to make substantial payments, which would adversely affect our financial position and results of operations. Furthermore, any increase in the volatility of our stock price, or changes in the insurance market generally, may result in us being required to pay substantially higher premiums for our directors’ and officers’ liability insurance than those to which we ~~are currently~~were previously subject and may even cause one or more of our underwriters to be unwilling to insure us.

Our stock price has been, and is likely to continue to be, volatile, and thus our stockholders could incur substantial losses.

Our stock price has been volatile and could be subject to wide fluctuations in response to various factors, many of which are beyond our control. ~~Since our initial public offering in~~From September 30, 2014 through March ~~2013 and through January 19, 2018,~~31, 2020, the daily closing price of our common stock on the NASDAQ Global Select Market has ranged from ~~$16.18~~$21.00 to ~~$67.32.~~$126.37. The stock market in general and the market for biopharmaceutical companies, and for those developing potential therapies for ~~HCV~~viral infections and liver diseases in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular ~~companies.~~companies, which in some cases has been exacerbated by the COVID-19 pandemic. As a result of this volatility, you may not be able to sell your holdings of our common stock at or above your purchase price, if at all. The market price for our common stock may be influenced by many factors, including:

Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which they might otherwise receive a premium for their shares.

These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibit a person who owns 15% or more of our outstanding voting stock from merging or combining with us

for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Any provision in our corporate charter or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

Our employment agreements with our executive officers may require us to pay severance benefits to any of those persons who are terminated in connection with a change of control of us, which could harm our financial condition or results.

Our executive officers are parties to employment agreements that provide for aggregate cash payments of up to approximately ~~$4.5~~$4.3 million for severance and other non-equity-based benefits in the event of a termination of employment in connection with a change of control of our company. In addition, based on the closing price of our common stock as of ~~December~~March 31, ~~2017~~2020 of ~~$58.68~~$51.43 per common share, the aggregate intrinsic value of unvested stock options and other equity awards subject to accelerated vesting upon these events was ~~$25.0~~$7.1 million. The accelerated vesting of awards options could result in dilution to our stockholders and harm the market price of our common stock. The payment of these severance benefits could harm our company’s financial condition and results. In addition, these potential severance payments may discourage or prevent third parties from seeking a business combination with us.

We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to “emerging growth companies” will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an “emerging growth company,” we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As an “emerging growth company” we are required to report periodic financial results and selected financial data related to two fiscal years compared to three and five years, respectively, for comparable data required to be reported by other public companies in selected SEC reports. We may take advantage of these exemptions until we are no longer an “emerging growth company.” We will continue to be an “emerging growth company” until our fiscal year ending September 30, 2018. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement newly required ~~new~~ or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any failure to maintain effective internal control as a result of shutdowns during the global COVID-19 pandemic could result in deficiencies in internal control. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

We are required to disclose changes made in our internal controls and procedures on a quarterly basis and our management is required to assess the effectiveness of these controls annually. However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We will continue to be an “emerging growth company” until our fiscal year ending September 30, 2018. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.

Because we do not anticipate paying cash dividends on our common stock for the foreseeable future, investors in our common stock may never receive a return on their investment.

You should not rely on an investment in our common stock to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our common stock for the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations.

Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not invest in our common stock.

A sale of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of ~~December~~March 31, ~~2017,~~2020, we had ~~19.1~~20.0 million shares of common stock outstanding. In addition, as of ~~December~~March 31, ~~2017, 2.7~~2020, 3.3 million and ~~0.2~~0.1 million shares of common stock that are subject to outstanding options or restricted stock unit awards, respectively, under our outstanding equity ~~plan~~plans are eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, and Rules 144 and 701 under the Securities Act. If these additional shares of common stock are sold, or it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If those analysts are unable to predict accurately the demand and net sales of AbbVie’s HCV regimens, that could result in our reported revenues and earnings being lower than the so-called “market consensus” of our projected revenues, which could negatively affect our stock price. In addition, if too few securities or industry analysts cover our company, the trading price for our stock would likely be negatively impacted. In the event that one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ENTA	NASDAQ

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements	3
	Unaudited Consolidated Balance Sheets	3
	Unaudited Consolidated Statements of Operations	4
	Unaudited Consolidated Statements of Comprehensive Income (Loss)	5
	Unaudited Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity	6
	Unaudited ~~Notes to~~ Consolidated ~~Financial~~ Statements of Cash Flows	7
	Unaudited Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1719
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2629
Item 4.	Controls and Procedures	2629
PART II—OTHER INFORMATION
Item 1A.	Risk Factors	2830
Item 6.	Exhibits	53
~~Signatures~~		54
Signatures		55

	December 31,			September 30,			March 31,		September 30,
	2017			2017			2020		2019
Assets
Current assets:
Cash and cash equivalents	$	68,053		$	65,675		$	74,338	$	51,230
Short-term marketable securities		152,389			157,994			280,917		284,006
Accounts receivable		23,109			10,614			27,619		51,313
Prepaid expenses and other current assets		4,075			3,536			19,835		15,299
Total current assets		247,626			237,819			402,709		401,848
Long-term marketable securities								80,099		65,013
Property and equipment, net		7,870			8,049			9,738		10,927
Long-term marketable securities		77,047			70,038
Deferred tax assets		7,568			10,123			12,418		11,341
Operating lease, right-of-use assets								7,837		—
Restricted cash		608			608			608		608
Other long-term assets								92		92
Total assets	$	340,719		$	326,637		$	513,501	$	489,829
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	3,268		$	3,714		$	5,945	$	6,689
Accrued expenses and other current liabilities		5,697			7,970			9,807		15,920
Income taxes payable		10,257			9,298
Operating lease liabilities								3,764		—
Total current liabilities		19,222			20,982			19,516		22,609
Warrant liability		—			807
Operating lease liabilities, net of current portion								5,330		—
Series 1 nonconvertible preferred stock		1,528			762			1,628		1,628
Other long-term liabilities		2,390			2,410			1,036		3,100
Total liabilities		23,140			24,961			27,510		27,337
Commitments and contingencies (Note 11)
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock; $0.01 par value per share, 100,000 shares authorized; 19,150 and 19,120 shares issued and outstanding at December 31, 2017 and September 30, 2017, respectively		191			191
Common stock; $0.01 par value per share, 100,000 shares authorized; 19,986 and 19,703 shares issued and outstanding at March 31, 2020 and September 30, 2019, respectively								200		197
Additional paid-in capital		260,752			256,241			314,005		298,409
Accumulated other comprehensive loss		(458	)		(112	)
Accumulated other comprehensive income								608		146
Retained earnings		57,094			45,356			171,178		163,740
Total stockholders' equity		317,579			301,676			485,991		462,492
Total liabilities and stockholders' equity	$	340,719		$	326,637		$	513,501	$	489,829

	Three Months Ended
	December 31,
	2017			2016
Net income (loss)	$	11,693		$	(4,980	)
Other comprehensive loss:
Net unrealized losses on marketable securities, net of tax of ($107) and ($63)		(346	)		(104	)
Total other comprehensive loss		(346	)		(104	)
Comprehensive income (loss)	$	11,347		$	(5,084	)

	Three Months Ended					Six Months Ended
	March 31,					March 31,
	2020			2019		2020		2019
Net income (loss)	$	(6,005	)	$	4,145	$	7,438	$	30,156
Other comprehensive income:
Net unrealized gains on marketable securities, net of tax of $119 and $78, $147 and $123		374			245	$	462	$	386
Total other comprehensive income, net of tax		374			245		462		386
Comprehensive income (loss)	$	(5,631	)	$	4,390	$	7,900	$	30,542

								Accumulated
					Additional			Other					Total
	Common Stock				Paid-In			Comprehensive			Retained		Stockholders'
	Shares		Amount		Capital			Income (Loss)			Earnings		Equity
Balances at September 30, 2018		19,395	$	194	$	276,526		$	(398	)	$	117,357	$	393,679
Exercise of stock options		40		—		1,161			—			—		1,161
Stock-based compensation expense		—		—		5,843			—			—		5,843
Other comprehensive income, net of tax		—		—		—			141			—		141
Net income		—		—		—			—			26,011		26,011
Balances at December 31, 2018		19,435	$	194	$	283,530		$	(257	)	$	143,368	$	426,835
Exercise of stock options		157		2		4,464			—			—		4,466
Vesting of restricted stock units, net of withholding		77		1		(4,189	)							(4,188	)
Stock-based compensation expense				—		4,707			—			—		4,707
Other comprehensive income, net of tax		—		—		—			245			—		245
Net income		—		—		—			—			4,145		4,145
Balances at March 31, 2019		19,669	$	197	$	288,512		$	(12	)	$	147,513	$	436,210

	Fair Value Measurements at December 31, 2017 Using:								Fair Value Measurements at March 31, 2020 Using:
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)								(in thousands)
Assets:
Cash equivalents:
Money market funds	$	36,702	$	—	$	—	$	36,702	$	69,304	$	—	$	—	$	69,304
Marketable securities:
U.S. Treasury notes		—		5,990		—		5,990		168,191		—		—		168,191
Commercial paper		—		8,984		—		8,984		—		45,876		—		45,876
Marketable securities:
U.S. Treasury notes		51,698		—		—		51,698
Corporate bonds		—		154,286		—		154,286		—		146,949		—		146,949
Commercial paper		—		23,452		—		23,452
	$	88,400	$	192,712	$	—	$	281,112	$	237,495	$	192,825	$	—	$	430,320
Liabilities:
Warrant liability	$	—	$	—	$	—	$	—
Series 1 nonconvertible preferred stock		—		—		1,528		1,528	$	—	$	—	$	1,628	$	1,628
	$	—	$	—	$	1,528	$	1,528	$	—	$	—	$	1,628	$	1,628

	Fair Value Measurements at September 30, 2017 Using:								Fair Value Measurements at September 30, 2019 Using:
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)								(in thousands)
Assets:
Cash equivalents:
Money market funds	$	19,863	$	—	$	—	$	19,863	$	44,569	$	—	$	—	$	44,569
Commercial paper		—		29,756		—		29,756
Corporate bonds		—		3,000		—		3,000
Marketable securities:
U.S. Treasury notes		60,843		—		—		60,843		170,515		—		—		170,515
Corporate bonds		—		150,731		—		150,731		—		111,837		—		111,837
Commercial paper		—		12,458		—		12,458		—		66,667		—		66,667
U.S. Agency bonds		—		4,000		—		4,000
	$	80,706	$	199,945	$	—	$	280,651	$	215,084	$	178,504	$	—	$	393,588
Liabilities:
Warrant liability	$	—	$	—	$	807	$	807
Series 1 nonconvertible preferred stock		—		—		762		762	$	—	$	—	$	1,628	$	1,628
	$	—	$	—	$	1,569	$	1,569	$	—	$	—	$	1,628	$	1,628

		Range (Weighted Average)
		December 31,	September 30,
	Unobservable Input	2017	2017
Warrant liability and Series 1 nonconvertible preferred stock	Probabilities of payout	0%-65%	0%-65%
	Discount rate	5.25%	5.25%

	Warrant Liability			Series 1 Nonconvertible Preferred Stock
Balance, September 30, 2017	$	807		$	762
Warrants exercised		(766	)		766
Warrants expired		(41	)		—
Balance, December 31, 2017	$	—		$	1,528

	Series 1 Nonconvertible Preferred Stock
Balance, September 30, 2019	$	1,628
Change in fair value of nonconvertible preferred stock		—
Balance, March 31, 2020	$	1,628

	December 31, 2017									March 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)									(in thousands)
U.S. Treasury notes										$	166,780	$	1,411	$	—			168,191
Corporate bonds	$	154,778	$	—	$	(492	)	$	154,286		147,608		17		(676	)		146,949
U.S. Treasury notes		51,838		—		(140	)		51,698
Commercial paper		23,452		—		—			23,452
Commercial Paper											45,876		—		—			45,876
	$	230,068	$	—	$	(632	)	$	229,436	$	360,264	$	1,428	$	(676	)	$	361,016

	September 30, 2017									September 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)									(in thousands)
U.S. Treasury notes										$	170,519	$	60	$	(64	)	$	170,515
Corporate bonds	$	150,841	$	9	$	(119	)	$	150,731		111,690		170		(23	)		111,837
U.S. Treasury notes		60,908		—		(65	)		60,843
Commercial paper		12,458		—		—			12,458
U.S. Agency bonds		4,004		—		(4	)		4,000
Commercial Paper											66,667		—		—			66,667
	$	228,211	$	9	$	(188	)	$	228,032	$	348,876	$	230	$	(87	)	$	349,019

	Outstanding Warrants			Weighted Average Exercise Price
	(in thousands, except per share data)
Outstanding as of September 30, 2017		1,030		$	0.01
Exercised		(978	)	$	0.01
Expired		(52	)	$	0.01
Outstanding as of December 31, 2017		—		$	0.01

	Shares Issuable Under Options (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)		Shares Issuable Under Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding as of September 30, 2017		2,298		$	30.36		7.4	$	37,821
										(in thousands)					(in years)		(in thousands)
Outstanding as of September 30, 2019											2,967		$	46.54		6.7	$	57,336
Granted		466		$	48.55						684			61.80
Exercised		(29	)	$	14.80						(237	)		29.68
Forfeited		(13	)	$	39.45						(100	)		69.61
Outstanding as of December 31, 2017		2,722		$	33.60		7.7	$	68,272

Options exercisable as of December 31, 2017		1,444		$	29.19		6.6	$	42,597
Outstanding as of March 31, 2020											3,314		$	50.20		6.8	$	32,699
Options vested and expected to vest as of March 31, 2020											3,314		$	50.20		6.8	$	32,699
Options exercisable as of March 31, 2020											1,978		$	40.39		5.5	$	30,213

	PSUs				rTSRUs				PSUs					rTSRUs
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
	(in thousands, except per share data)								(in thousands, except per share data)
Unvested at September 30, 2017		70	$	34.51		70	$	43.07
Unvested at September 30, 2019										41		$	73.02		41		$	67.76
Granted		—	$	—		—	$	—		27			63.94		27			45.81
Vested		—	$	—		—	$	—		(3	)		77.93		(20	)		84.70
Cancelled		—	$	—		—	$	—		(19	)		77.93		(2	)		84.70
Unvested at December 31, 2017		70	$	34.51		70	$	43.07
Unvested at March 31, 2020										46			65.23		46		$	46.46

	Restricted Stock Units		Weighted Average Grant Date Fair Value		Restricted Stock Units			Weighted Average Grant Date Fair Value
	(in thousands, except per share data)				(in thousands, except per share data)
Unvested at September 30, 2017		110	$	30.00
Unvested at September 30, 2019						95		$	30.00
Granted		—	$	—		—			—
Vested		—	$	—		(48	)		30.00
Cancelled		—	$	—		(2	)		30.00
Unvested at December 31, 2017		110	$	30.00
Unvested at March 31, 2020						45		$	30.00

Years ended September 30,	(in thousands)
2020	$	2,108
2021		3,927
2022		2,787
2023		608
2024		519
Total future minimum lease payments		9,949
Less: imputed interest		(855	)
Total operating lease liabilities	$	9,094

Included in the balance sheet:	March 31, 2020
	(in thousands)
Current operating lease liabilities	$	3,764
Operating lease liabilities, net of current portion		5,330
Total operating lease liabilities	$	9,094

Years Ended September 30,	Operating Leases		Capital Leases
	(in thousands)
2020	$	2,728	$	93
2021		2,803		101
2022		2,684		99
2023		608		—
2024		519		—
Total	$	9,342	$	293

		Incorporated by Reference						Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Date	Exhibit Number	File Number	Filed Herewith	Exhibit Description	Form	Date	Exhibit Number	File Number	Filed Herewith

3.1	Restated Certificate of Incorporation of Enanta Pharmaceuticals, Inc.	8-K	08/18/2015	3.1	001-35839		Restated Certificate of Incorporation of Enanta Pharmaceuticals, Inc.	8-K	08/18/2015	3.1	001-35839

3.2	Amended and Restated Bylaws of Enanta Pharmaceuticals, Inc. (as amended and restated in August 2015)	8-K	08/18/2015	3.2	001-35839		Amended and Restated Bylaws of Enanta Pharmaceuticals, Inc. (as amended and restated in August 2015)	8-K	08/18/2015	3.2	001-35839

31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.	—	—	—	—	X	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.	—	—	—	—	X

31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.	—	—	—	—	X	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.	—	—	—	—	X

32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	—	—	—	—	X	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	—	—	—	—	X

101	The following materials from the Quarterly Report of Enanta Pharmaceuticals, Inc. on Form 10-Q for the quarter ended of December 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2017 and September 30, 2017 of Enanta Pharmaceuticals, Inc., (ii) Consolidated Statements of Operations for the three months ended December 31, 2017 and 2016 of Enanta Pharmaceuticals, Inc., (iii) Consolidated Statements of Comprehensive Income (Loss) for the three months ended December 31, 2017 and 2016 of Enanta Pharmaceuticals, Inc., (iv) Consolidated Statements of Cash Flows for the three months ended December 31, 2017 and 2016 of Enanta Pharmaceuticals, Inc., and (v) Notes to Consolidated Financial Statements of Enanta Pharmaceuticals, Inc.					X	The following financial statements from the Quarterly Report of Enanta Pharmaceuticals, Inc. on Form 10-Q for the quarter ended March 31, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) and Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags					X

104							Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).					X

		ENANTA PHARMACEUTICALS, INC.

Date: ~~February 9, 2018~~May 11, 2020

		/s/ Paul J. Mellett
		Paul J. Mellett Chief Financial Officer (Principal Financial and Accounting Officer)